Avenue Supermarts, which owns and manages D-Mart stores, saw its share price fall 3.66% to Rs 4,145.7 in intra-day trading on Monday after the company announced weak operational performance in the September quarter (Q2FY23).

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One of India’s biggest food and grocery stores saw its stock price trade at its lowest point since August 23, 2022, hitting an eight-week low. The stock has dropped 6% in the last week, compared to a 0.29% advance in the S&P BSE Sensex. It has fallen 21% in the last year, compared to a 5% drop in the benchmark index.

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D-Mart is a nationwide grocery chain that provides clients with a wide variety of home and personal items under one roof. The firm sells a wide range of items, with a concentration on foods, non-foods (FMCG), and general retail and clothes.

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While D-Mart’s revenue per store increased by 9% year on year (YoY), revenue/sqft remained 10% below pre-covid levels in Q2FY20, owing to larger store sizes and inflationary pressure in the non-food sector.

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Avenue Supermarts recorded revenue growth of 36.6% year on year to Rs 10,638 crore, as guided by management in its pre-quarterly statement. Meanwhile, other costs increased by 51% year on year to Rs 528 crore. As a result, EBITDA margins fell 20 basis points year on year to 8.4%, down from 8.6% in the year-ago quarter.

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“With the discretionary product mix being impacted, gross margins for the quarter came in at Rs 15.1 per cent below our estimate of 15.6 per cent. The company believes it would be able to provide better value to its customers by managing its cost better and providing value for money in an inflationary environment,” the management said.

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Analysts believe that the forthcoming festive season will make the third fiscal quarter of FY23 an important one to monitor.

“We expect the company’s RoIC to improve in the current financial year driven by dual triggers of enhanced margins and better store throughput,” ICICI Securities said.

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On the strength of the company’s sustained strong store addition trajectory, analysts at Motilal Oswal Financial Services (MOFSL) increased the company’s FY23E store additions to 45 from 40.