| Avenue Supermarts Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper of Avenue Supermarts Limited (ASL) at 'CRISIL AA+/Stable/CRISIL A1+'.
The ratings continue to reflect the strong market position of the company in the domestic organised F&G (food and grocery) retail market and robust financial risk profile. These strengths are partially offset by a moderate though improving geographic spread, and susceptibility of operating performance to regulatory changes and to competition.
Operating performance improved substantially year-on-year during the first-half of fiscal 2022 with strong recovery in same-store demand compared to pre-pandemic level, relaxation of constraints and new store additions. Although sales were impacted in fiscal 2021 because of pandemic-related curbs and restrictions on sale of non-food products and lower footfalls, performance remained resilient with only marginal degrowth of 3% and healthy cash accrual.
Furthermore, healthy operating profitability of 7.5-9% should sustain over the medium term despite moderating in fiscal 2021 to 6.7% due to suboptimal fixed cost coverage and lower proportion of high-margin merchandise in total sales. Overall profitability will be backed by faster breakeven of stores, superior per store revenue compared with peers, stable proportion of non-F&G sales, high inventory turnover as well as maintenance of the gross margin at around 15% despite increasing competitive intensity.
Financial risk profile should remain robust over the medium term, driven by strong cash accrual (estimated at over Rs 1,800 crore per fiscal), absence of any long-term borrowings and healthy liquidity. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of ASL and its wholly owned subsidiaries, Align Retail Trade Pvt Ltd (ARTPL), Avenue Food Plaza Private Ltd (AFPL), Avenue E-commerce Ltd (AEL), Nahar Seth and Jogani Developers Pvt Ltd and Reflect Wholesale and Retail Pvt Ltd. The subsidiaries are an integral part of ASL's operations. All the five companies are referred to as ASL.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Market position is reinforced by steady same-store growth (barring fiscal 2021), retail productivity, and short gestation for new stores. ASL currently operates 246 stores (as on September 30, 2021) under the DMart brand.
Strong procurement abilities, low-priced products along with high cost control will lead to greater footfall. This results in high inventory turnover and revenue per square foot (sq ft) and translates into industry-leading retail store productivity. Aggregate revenue per sq ft at about Rs 27,306 in fiscal 2021 (Rs 32,879 in 2020) is higher than most retailers in the same segment. Though operating profitability has improved over the years, it weakened in fiscal 2021 due to the impact of Covid-19.
Networth was sizeable at Rs 12,084 crore as on March 31, 2021, while strong annual cash generation continued despite steady store addition. The company has been able to maintain healthy operating metrics while adding stores, and prepaid debt through proceeds of its QIP (qualified institutional placement) in fiscal 2020. Out of the total QIP proceeds of Rs 4,098 crore, Rs 2,285 crore remained unutilised till March 2021, which has translated into strong debt protection metrics. The company incurred capital expenditure (capex) of over Rs 1,300 crore in fiscal 2021 and increased retail space to 8.8 million sq ft (further increased to 9.44 million sq. ft as of September 30, 2021) from 7.8 million sq ft.
Consolidation in the industry will increase bargaining power of competitors in the brick and mortar retail, which may impact the gross margins of the company over the medium term.
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Liquidity: Strong Liquidity is backed by healthy accrual, minimal debt and cash and equivalents of over Rs 2,400 crore as on March 30, 2021. Utilisation of fund-based working capital limit of Rs 585 crore was negligible over the six months through September 2021. The capex to be incurred for opening new stores over the next three fiscals is expected to be funded through internal accrual. |
Outlook: Stable Credit risk profile will remain healthy over the medium term on account of improving market position in the organised retail segment, strong annual cash generation, and healthy financial flexibility. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company ASL is engaged in the organised retail business through its DMart chain of stores. The company was incorporated in 2000 and is promoted by Mr Radhakishan Damani, an equity market investor. Mr Ignatius Navil Noronha is the chief executive officer and managing director. As of September 2021, it had 246 hypermarket stores across 12 states and 1 union territories.
In the first-half of fiscal 2022, revenue was Rs 12,972 crore (Rs 9,189 crore in the corresponding period previous fiscal) and profit after tax (PAT) was Rs 513 crore (Rs 239 crore). |
Key Financial Indicators(CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||
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Criteria Details
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