Radhakishan Damani’s strengths are being put to test, and along with it, DMart’s resistance to e-commerce

• Damani and his venture DMart’s second-quarter results will show whether the billionaire investor and retail tycoon can continue to depend on his strengths solely.
• Damani has competition clouding him from all sides – from the country’s richest man Mukesh Ambani, the 152-year conglomerate TATA Group and the likes of Amazon and Flipkart.
• The question that remains to be answered is whether, for Damani, DMart’s offline retail outlets are enough for the next phase of growth as experts believe staying away from e-commerce isn’t going to help.

India’s second richest man Radhakishan Damani will face the test of times ahead of him. Damani and his venture DMart’s second-quarter results will show whether the stock market expert and retail tycoon can continue to depend on his strengths solely.

With coronavirus pandemic taking a toll on offline retail stores, competition rising from Reliance and now, Tata, DMart’s otherwise celebrated stock price too has lost some of its sheen. The stock has fallen by over 22% from its pre-covid highs in February.

Competition could cloud Damani’s growth

Damani has competition clouding him from all sides. Mukesh Ambani, the country’s richest man, has raised over $5 billion for his retail venture – Reliance Retail, while also acquiring one of their biggest competitors Kishore Biyani’s Future Retail. The 152-year conglomerate Tata Group is increasingly betting on a super app with eyes on acquisition or investment in the likes of BigBasket, while also being in talks with Walmart for a partnership. And all of this while the likes of Amazon, Flipkart are also doubling down on their Kirana store and grocery offerings, while even raining discounts.

“DMart does not believe in any conditional discounts or promotions and also does not time its discounts to a festive or holiday season. Also, for FMCG products that enjoy high turns, DMart offers very low prices (and earns minuscule margins in several cases) in a bid to create the perception of best value,” said a report by Jefferies.

His biggest competitor will be Reliance, which with its latest offering, JioMart, could eat into Damani’s profits. And analysts expect that within the grocery segment Reliance and Future’s combined sales could be a threat to DMart.

Damani has opportunities but needs to ramp up his e-commerce offerings

Analysts at HSBC believe that the big market opportunity in India’s $700 billion retail industry will keep competition alive and also create a space for all players to grow.

DMart could also double down on its store count across the country over the next few years. The management has already said that it plans to add 60 more stores by FY22. “We continue to be on the lookout for locations within our clusters and outside, where we can build new stores that can service our target customers,” the company had said.

But for Damani and DMart staying away from e-commerce isn't going to help. DMart currently runs 'DMart Ready' – its e-commerce offering in Mumbai alone. While they have always had a loyal customer base walking into its stores, the next phase of growth will need the retail chain to expand its online offerings.

DMart has a registered entity called Avenue E-commerce, where the company had invested ₹252.76 crore as of March 31, 2020, however it hasn’t yet created any significant footprint with online retail.

"RIL-Future combined gives the new entity a larger footprint for capturing the online grocery pie, especially in the large cities, where consumers equally value convenience and attractive prices. To mitigate this longer-term risk, DMART should deepen and widen the service levels of its DMART ready format, in our view," said analysts at HSBC.

Another report by Kotak Institutional Equities too emphasized DMart's need to switch to e-commerce. "DMart needs to bring more cities under its e-commerce network in order to maintain revenue momentum. The competitive intensity would ensure that DMart's margins may not expand significantly, going forward," said the report.

A weak first quarter

DMart, which has 216 stores across India, had taken a severe hit during the first quarter. However, with the festive season upon us, including recently celebrated Rakshabandhan and Ganesh Chaturthi, its second-quarter results could bring in little respite.

For the first quarter of the current financial year, DMart’s parent company Avenue Supermart had posted a 88% fall in profits from ₹334.59 crore to a mere ₹48 crore.

While most of DMart’s stores are now operational, right after its first-quarter results, the company had said that the future continued to remain uncertain. “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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