CRISIL said that the upgrade factors in the company’s strong presence in the organised food and grocery (F&G) retail segment, continually improving geographical footprint benefitting scale of operations while maintaining strong operating efficiency, and a robust financial risk profile.

Operating performance registered strong growth in fiscal 2024 with rise in volumes, scale up of stores opened over the past couple of years, and new store additions. The company has been consistently increasing its geographical footprint and, as on 31 March 2024, it had 365 stores spread across 13 states and one union territory. It is expected to add 30-40 stores per annum, thereby deepening its penetration in the organised F&G retail segment.

In fiscal 2024, operating EBITDA stood at Rs 4,104 crore (8.1% margin) against Rs 3,657 crore (8.5% margin) previous fiscal. Margin moderated slightly on-year due to lower contribution of the high-margin accruing general merchandise and apparel business. However, improving operating leverage will continue to support overall margin over the medium term.

Consolidated profitability is expected to remain at similar levels, 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 gross margin at around 15% despite increase in competitive intensity.

Financial risk profile shall remain robust over the medium term, driven by strong tangible networth and a debt-free balance sheet. Liquidity is also strong, with cash and bank balance of nearly Rs 1,670 crore as on 31 March 2024.

Strong cash accrual of over Rs 3,000 crore per annum should be sufficient to meet annual capital expenditure (capex) requirement.

These strengths are partially offset by moderate susceptibility of operating performance to inflationary pressures, large store additions, higher-than-expected losses in the e-commerce segment and exposure to intense competition.

Avenue Supermarts is engaged in the organised retail business through its DMart chain of stores. As of March 2024, ASL (ASL) had 365 hypermarket stores across 13 states and one union territory.