Retail sector: Avenue Supermarts emerges as top performer

By: | Published: June 12, 2018 5:13 AM

Same-store sales growth remained flat for most companies in FY18, mostly due to de-stocking across categories on GST implementation.

Markets,  Indian equity markets, ADITYA BIRLA company, PSBs, Rival Spencer’s Retail, the retailing vertical of Calcutta Electric Supply Corp (CESC), finally started to turn the corner as the company broke even at Ebitda level in FY18 for the first time, almost after a decade of its operations.

Avenue Supermarts, which operates retail chain DMart, is the best performing retailer in the country, reporting 63% increase in its net profit to Rs 785 crore in FY18. The total revenue rose 26.3% to Rs 15,003 crore while the Ebitda was up 37.8% at Rs 1,337. DMart’s low rental cost of less than 0.2% of its revenue, everyday low cost-low price strategy has helped the company to seal the number one position for the last four years.

In Q4FY18, net profit grew 72.9% year-on-year to Rs 167 crore. Total revenue was up 22.5% to Rs 3,810 crore. Ebitda was up 41.8% year-on-year to Rs 294 crore. Neville Noronha, CEO & managing director, Avenue Supermarts, said the deflation in staples and tax rates not being comparable, store addition was not in line with expectation and the base effect of demonetisation has made March 2018 revenue a little tepid. Avenue Supermarts opened its first store in the country in 2002.

Rival Spencer’s Retail, the retailing vertical of Calcutta Electric Supply Corp (CESC), finally started to turn the corner as the company broke even at Ebitda level in FY18 for the first time, almost after a decade of its operations. The company reported Ebitda of Rs 17 crore in FY18 against an Ebitda loss of Rs 46 crore in FY17, after Spencer’s debt-takeover of around Rs 280 crore by parent resulting in nil finance cost in FY18. It has helped the company to narrow its net loss to Rs 30 crore in FY18 compared with net loss of Rs 141 crore in FY17. Spencer’s was one of the early entrants in the sector but couldn’t reap the benefits. On the contrary, rivals Future Retail and Avenue Supermarts are handsomely profitable and have higher presence across the country.

Spencer’s Retail reported revenue growth of 2.5% to Rs 2,091 crore in FY18. Same-store-sales growth (SSG) of the company has increased marginally to Rs 1,604 per sq ft in FY18 compared with SSG of Rs 1,603 in FY17. Rajat Wahi, partner Deloite India, said, “Focus on getting the right format, right location, cost-cutting and shutting down loss-making stores, along with entering the online space must have helped the company to improve its performance. Most of the retailers were struggling to figure out the right location and the right format and opted for shutting loss-making stores while also adding new stores in viable locations.”

Same-store sales growth remained flat for most companies, majorly due to de-stocking across categories on GST implementation. Spencer’s also focused on major renovation in couple of hypermarkets. Same-store sales growth of peer DMart was 14.2% in FY18 compared with 21.2% in FY17 because of GST disruptions and deflation in prices of staples. Future Retail reported same-store sales growth of 9.9% in FY18 compared with 12% in FY17. According to an Edelweiss report, retail business turnaround will drive Spencer’s re-rating. The company has already broken even at Ebitda level and supply chain optimisation under GST will reduce operating cost. Independent management focus will drive growth and re-rating in the future.

Spencer’s focus on shutting few loss-making stores and going cautious on expansion in FY18 compared with its peers has also helped the company to improve its performance. Spencer’s Retail added seven new stores during the year while shutting a few. It had 128 stores operational at the end of FY18 comprising 1.18 million sq ft compared with 124 stores operational in FY17 comprising 1.17 million sq ft, adding four stores at the net level. At present, Spencer’s has 41 hypermarkets (20,000 sq ft to 35,000 sq ft), 17 supermarkets (5,000 sq ft to 10,000 sq ft) and 70 daily stores (2,000 sq ft to 3,500 sq ft). Going forward the company plans to roll out 50-60 hypermarket stores over the next four years.

Rival Future Retail, which had launched its first Big Bazaar store in 2001, presently operates 1,035 retail stores across formats comprising 14.5 million sq ft and has added 171 stores in FY18. The company operates 285 Big Bazaar stores, 61 Fashion at Big Bazaar stores, 10 Foodhall stores, 666 Easyday Club stores and 13 Ezone stores. DMart, which started its operations in 2002, at present has 155 stores operational across the country with a retail area of 4.9 million square feet; the company added 24 stores in FY18.

In the past, Aditya Birla Retail exited Mumbai and Jaipur in 2012 by shutting its More supermarkets, Reliance Retail had shut around 100 Reliance Fresh stores in the last two years and even Future Group shut all its KBFP stores in Bengaluru couple of years back. RP Goenka-owned Spencer Retail also closed more than 200 stores in the last five years. The performance of Spencer’s has shown steady improvement over the last few years, as the company shut its loss-making stores and focused on profitable expansion. The other major bet for Spencer’s is its omni-channel presence, as the retailer has its own e-commerce platform, Omnipresent Retail India, through a 100% subsidiary.

Overall, retail companies witnessed muted growth in FY18. Future Retail reported a sharp decline of 3,245% in its net profit to Rs 11.31 crore in FY18. The results are not comparable with the previous year, quarter and full year due to the exceptional expense of Rs 603.87 crore in the quarter, as Future Retail demerged its retail business undertaking of Hypercity Retail (India) with the company.

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