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Radhakishan Damani has a string of challenges ahead of him and falling profits at DMart don’t help

Business Insider 2020-07-13 14:22:00
  • DMart’s parent company Avenue Supermart has posted a 88% fall in profits from ₹334.59 crore to a mere ₹48 crore in Q1FY21.
  • DMart’s high number of stores meant the company had to incur higher allowances for staff (it offered a hardship allowance to employees) and also had to bear sanitization costs for the stores.
  • For Radhakishan Damani, another big challenge is on the cards – If India’s richest man Mukesh Ambani decides to buy Future Retail and alongwith it will acquire the Bigbazaar chain of stores.

Radhakishan Damani, the owner ⁠— with a net worth of $15.6 billion, according to Forbes ⁠— of Avenue Supermarts, which operates the DMart chain of retail stores is watching a dream run come to a near standstill. For the first quarter of the current financial year, DMart’s parent company Avenue Supermart has posted a 88% fall in profits from ₹334.59 crore to a mere ₹48 crore.

DMart’s share price reflected the investors’ disappointment with a 4% fall on Monday (July 13).

While DMart said that the company is less anxious now than it was during April 2020, analysts say the causes of worry are only beginning. The biggest of them is a challenge from Asia’s richest man, Mukesh Ambani.

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Higher costs at stores while customers head to kiranas

One of Damani’s biggest advantages was the presence of DMart in Tier-II cities, reaching out to a larger market. But analysts at HDFC Securities believe that this very strength has turned into its weakness. “Higher exposure to some of the most impacted Indian districts and store closures in Apr (50% of network closed in Apr) manifested into a severe footfall loss, ergo revenue loss for D-MART,” said the report.

DMart began with a single store in Mumbai’s Powai in 2002. Today, DMart is present in over 214 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab and Rajasthan.

The higher number of stores also meant DMart had to incur higher allowances for staff (it offered a hardship allowance to employees) and also had to bear sanitization costs for the stores.

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DMart too acknowledged that ‘organized retail’ failed to mark during the lockdown as local kirana stores

came to the rescue.

The company said customers didn’t put ‘value’ as a priority during lockdown. “There is also a sales channel of traditional trade which is smart, agile and resourceful. India still has a strong and resilient network of small shops and neighbourhood stores. They came roaring back after the first 2 or 3 weeks of lockdown serving the needs of an anxious customer the way the customer wanted it - quickly over the counter or through home deliveries,” said the company in a regulatory filing.

A bigger challenge if Reliance and Future Retail join hands
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DMart’s rise was credited to its ability to outbid kirana stores with heavy discounts powered by smart sourcing and it wooed middle class indians into organised retail. But now the question is – can he beat someone with deep pockets like Mukesh Ambani?

If India’s richest man Mukesh Ambani decides to buy Future Retail and alongwith it will acquire the Bigbazaar chain of stores. Reliance is reportedly close to closing the deal with Kishore Biyani’s Future Retail, as the corporate giant is doubling down investments in the Indian retail sector with its own venture JioMart.

Ambani is already into grocery retail but bagging Big Bazaar would give him an unprecedented reach and market share that would be difficult to beat. So far, the Future Group

with a big bag of debt

, has not been much of a competitor even though it had a headstart over DMart and ten times the number of stores.

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CompanyNo. of storesCities
DMart21469
Reliance Retail109016700
Big Bazaar2000400
Uncertainty with lockdowns

Even as he prepares for the Ambani challenge, DMart may be bracing for another troubled quarter. Several of the states in which DMart is operational – Tamil Nadu, Maharashtra, Karnataka, have once again enforced strict lockdowns.

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As the latest earnings show, despite keeping stores open 24*7 since April 1⁠— and tying up with housing societies and taking in orders through WhatsApp ⁠and delivering them at home— the volumes have tumbled and profits have shrunk severely.

“Discretionary consumption continues to be under pressure, especially in the Non-FMCG categories. This is impacting gross margins negatively. Store operations and duration of operation per day continues to remain inconsistent across cities due to strict lockdowns enforced by local authorities from time to time. In addition, in certain cities authorities are once again insisting on selling only essential products. Hence our future revenues continue to remain uncertain,” said the company.

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