2QFY21 in line but not back to normal yet. Dmart’s 2QFY21 revenue decline of 12% yoy was in line with our estimates. Yoy revenue decline was due to sporadic lockdowns, weak footfalls and sluggish recovery in general merchandise sales. EBITDA of Rs 3.25 bn missed estimates due to weaker-than-anticipated GM of 14%. We cut FY2021-23E earnings by 11-18% as we bake in a prolonged pandemic and slower recovery in revenues. SELL with revised DCF-based FV of 1,475 (Rs 1,530 earlier).
Dmart reported 12.3% yoy decline in 2QFY21 largely on account of slow recovery in footfalls, partial store shutdowns due to local lockdowns and sluggish sales in general merchandise and apparel category. September SSSG came in at -12.5% for stores that have been operating for more than two years. Expectedly, food and FMCG category was the quickest to revive and overall sales in this category were up on a yoy basis in September 2020. General merchandise and apparel category is slow to revive and contributed to 23% of 2QFY21 revenues compared to 27% on a normalised basis. Overall, footfalls are below pre-Covid levels and basket sizes are higher; per Dmart, both these trends are reversing and inching closer to pre-Covid levels.
Loss of sales of higher margin products (general merchandise and apparel) resulted in a 102 bps yoy reduction in gross margin to 14%. This drove a 4% EBITDA miss compared to our estimates. Yoy revenue decline resulted in negative operating leverage with 2QFY21 EBITDA margin of 6.2% declining 244 bps yoy. We believe margins should see revival in 3QFY21 as revenue throughput improves and general merchandise sales pick-up due to festive demand.”
The company added six new stores (and shut two) in 2QFY21 to take the net store count to 220. It has added eight stores in 1HFY21. We believe the bulk of the store expansion will happen in 2HFY21 and we thus retain our assumption of 24 new stores in FY2021. Dmart recently launched e-commerce services in select pin-codes of Pune. It has also converted two Mumbai stores (Mira Road and Kalyan) to e-commerce fulfilment centres in a bid to fast track the Dmart Ready operations.
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