As per AVL’s latest investor presentation, the avg bill cut is Rs 23,600 for FY22 whereas EMIL’s avg bill cut is also at similar levels (~Rs 23,000). Seems a bit odd that a Bihar focused retailer has slightly higher bill cut than an AP/TG focused retailer.
If we compare the per capita incomes of Patna and Hyderabad as these would be the biggest markets for both these companies, Patna has a per capita income of ~Rs 60k and Hyderabad is 3.5-4.0x of this number.
The logical assumption is that lower per capita incomes would result in downtrading or buying cheaper goods, unless there is a sizeable (and with enough disposable cash) non-formal economy that is contibuting to higher bill cuts for AVL.
Secondly, AVL’s gross margin is also 2 ppts higher than EMIL’s (13.8% vs 15.8%), which again feels a bit odd as you would assume that EMIL being the bigger company would be able to negotiate better rates than AVL. While, 80% of AVL’s purchases are directly from OEMs, EMIL’s RHP also mentions that a vast majority of their purchases are also from OEMs.
EMIL has a small Wholesale portion which has lower gross margins but should not impact gross margin significantly. EMIL also a decent incentive income which increases gross margin (no other operating revenue for AVL). Even after this the gross margin for AVL is higher than EMIL.
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