While majority of retailers, both brick-and- mortar and online are reeling under pressure to make their bottomlines positive, the low-profile Mumbai-based D-Mart has breathed life into the challenging retail sector as it debuted on the stock market with a bumper opening. The high-listing premium given by the market to D-Mart is a mark of respect to a well-run company that follows the most basic fundamentals of doing business. In an exclusive conversation with IMAGES Retail, MD of D-Mart, Neville Noronha unveils the secret of ‘keeping things simple’ and how he has been able to run the company profitably in a segment that has high overheads.
The ‘KISS’ principle applies to D-Mart like no other retailer in India, as countless industry analyses have already observed that D-Mart not just does some things differently, but also does some different things. Shedding light on the basic fundamentals of D-Mart and how they have optimised their operational efficiencies, MD, D-Mart, Neville Noronha says, “We are no different than any reasonably well run business across any type of industry. It’s unfair for me to comment on anybody other than our own business. However I must say that unlike the e-commerce business, brick-and-mortar businesses allow multiple formats and multiple players within a format to blossom and be profitable over a period of time. These are exciting times for brick-and-mortar retail in India.”
D-Mart’s numbers are the best in the industry
D-Mart opened it’s first store in Powai, Mumbai in the year 2002 and it owns most of its stores unlike other chains. It is a consistently profitable retailer and has the best margins in the industry. The retail chain has made profits for at least the last five years.
D-Mart’s numbers are the best in the industry. The company reported net profit of Rs 97 crore for Q4 FY17, as compared to Rs 66 crore in the corresponding quarter of last fiscal.
Total revenue for the quarter ended March 31, 2017 stood at Rs 3,120 crore, as compared to Rs 2,220 crore in the same period last year. ASL’s Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) in Q4FY17 stood at Rs 217 crore, up 41 per cent.
The company’s EBITDA margin improved from 6.93 per cent in Q4 FY16 to 6.95 per cent in Q4 FY17. For the full year period ended March 31, 2017, ASL’s net profit jumped by 51.6 per cent to Rs 483 crore, as compared to Rs 318 crore of the year ago period. The company’s PAT margin improved from 3.70 per cent in FY16 to 4.04 per cent in FY17.
Total revenue for FY17 stood at Rs 11,912 crore, as compared to Rs 8,595 crore during FY16. ASL’s EBITDA in FY17 stood at Rs 995 crore, up by 46.9 per cent, as compared to Rs 677 crore during FY16. The company’s EBITDA margin improved from 7.9 per cent in FY16 to 8.4 per cent in FY17.
For FY17, Basic EPS stood at Rs 8.56 as against Rs 5.66 in FY16. Like for Like (LFL) growth has been 21.2 per cent in FY17 vis-à-vis 21.5 per cent in FY16. (LFL means the growth in revenue from sale of same stores which have been operational for atleast 24 months at the end of fiscal year). Sales revenue per retail business sq.ft. area increase from Rs 28,136 per sq.ft. (FY 16) to Rs 31,120 per sq.ft. for FY17. Total Bill cuts were Rs 10.85 crore in FY 17 as against Rs 8.47 crore in FY 16 showing growth of 28.10 per cent
Commenting on the financial performance of the company Neville Noronha, says, “March’17 quarter and financial year 2016-17
annual results has been in line with our expectations. Delivering great value and being consistently relevant to consumers is our most important long term objective.”
D-Mart’s splendid IPO debut
Avenue Supermarts, the operator of supermarket retail chain D-Mart, more than doubled on debut on hefty buying by investors. The stock listed at Rs 604.4 on the Bombay Stock Exchange, up 102 per cent over issue price of Rs 299. D-Mart’s IPO is touted to be the biggest since PNB Housing Finance’s Rs 3,000 crore offer in October last year.
Talking about the adulation that D-Mart’s IPO has got from the market, Noronha says, “ We are quite delighted. Actually we are overwhelmed with the response and grateful for the acknowledgement, which we have received.”
On being asked that will anything change for D-Mart as it’s a public listed company now, Noronha, replies, “Nothing changes. Why should we change? We have always aspired to be a responsible enterprise to the environment at large and aspirational to the right set of prospective and current employees. We shall continue to focus on that.”
Operational intelligence in a low-margin retail format
India’s most profitable and fastest growing large modern retailer isn’t an arm of one of the big-name conglomerates. It is Avenue Supermarts Ltd, which owns and operates hypermarkets and supermarkets retail chain D-Mart and it’s secret ingredient to success has been ‘Focus’. Since the launch of its first store in early 2000s, the retail chain has just focused on expanding in food and grocery.
D-Mart stores have the best inventory turnover ratio in the country. The quick inventory turnover allows the retailer to also negotiate better prices for itself, as it pays its suppliers early. It then passes on these low prices to its consumers.
The company’s focus is on competing in the “basics needs space and focus on efficiencies.” D-Mart’s business model is similar to international retailers such as Walmart Stores Inc, Swedish furniture retail giant IKEA and German-based discount chain, Lidl.
Talking about the operational efficiencies of D-Mart, Noronha, says, “ All the components of operations, can be encapsulated in just one word and that is ‘culture’. Culture is hard to explain but reasonably easy to experience when you see, hear and feel it. We are proud of what we have created so far and want to continue in the same spirit for a long time ahead.”
On being asked about new geographies that D-Mart is looking to expand in and what will be their location strategy, Noronha, answers, “Business is dynamic and opportunities keep evolving. We would want to focus on our existing markets only. Every two to three years we imagine what business challenges and complications would be three to five years later. We then focus on achieving those objectives. We try to keep up the pace. We achieve some goals and some we don’t. We try our best.”
The favourites in the business
Noronha, talks about international and Indian retail chains those who have got the ‘basics’ of business ‘right’.
Noronha, shares, “Absolutes has never been my choice of role models. I like a lot of things of a lot of retailers. What fascinates me the most of any good retailer is the philosophy and the belief through which those retail concepts got built. I think it’s less to do with business administration and customer service and more to do with the belief system of the founders. Globally IKEA, Uniqlo, Costco continue to be my favourites”
In his concluding remark, he pays an ode to Radhakishan Damani, Founder of D-Mart. Noronha, says, “I am not the founder of D-Mart, I have learnt everything about the business from Damani.
My early belief systems of retail and D-Mart have been nurtured by him.”