Avenue Supermarts higher as CRISIL reaffirms AA+ rating

Avenue Supermarts, the company that owns the popular D-Mart chain of retail outlets, has had a rating affirmation by CRISIL. In fact, CRISIL Ratings has reaffirmed its rating on the bank facilities and commercial paper of Avenue Supermarts at 'CRISIL AA+/Stable'. This is indicative a high degree of stability and safety with respect to repayment of interest and principal amount on time on the total borrowings of the company.

Even as the company has been one of the fastest growing retail brands in India, it has managed to maintain its financial stability and robustness. The affirmation of rating reflects its strong market position in the domestic organised food and grocery retail market. However, the CRISIL note also pointed out that the limitations imposed by the pandemic had resulted in modest geographic reach and vulnerability to regulatory changes.

Despite the strong competition that Avenue Supermarts faces from intense competition and aggressive dominance of Reliance Retail, its Operating performance improved substantially on a YoY basis. In fact, for the first nine months of FY22, Avenue Supermarts witnessed strong recovery in same-store demand; much higher than pre-pandemic levels. Sales were impacted in FY21 due to COVID -related  restrictions on sale of non-food products.

In the last couple of years, one of the biggest challenges for retail stores like Avenue Supermarts has been ensure the steady flow of footfalls. However, despite these challenges, the financial performance of D-Mart has been resilient, to say the very least. Even the degrowth of 3% in cash accruals was just about marginal. Even the operating profitability is expected to bounce back to 9% levels from the moderated level of 6.6% currently.

With improved fixed cost absorption, the overall profitability is likely to be helped along the way by faster breakeven of stores and superior per-store revenue. In addition, according to the CRISIL observations, Avenue Supermarts also enjoys high inventory turnover ratio as well as sustained gross margin at around 15%, notwithstanding the stiff competition in the business. The big advantage for Avenue Supermarts is the low level of long term debt.

While affirming the current ratings, CRISIL has pointed out that the risk profile of Avenue Supermarts was likely to remain healthy over the medium term. This was on account of its improving market position in the organised retail segment. In addition, the company also enjoys the benefits of strong annual cash generation and healthy financial flexibility. The company has been one of the big outperformers in the market since its listing in 2017.

As of December 2021, Avenue Supermarts had a total of 263 hypermarket stores that were spread across 13 states and one union territory. It had recently forayed into the NCR region in a big way. For the Dec-21 quarter, Avenue Supermarts reported a 23.6% accretion in its net profits to Rs.553 crore on the strength of 22% increase in sales revenues to Rs.9,218 crore. The recovery from the lows of the pandemic has been quick and also decisive.