Hi @Investor_No_1:
Like you, I also wait to read Hitesh bhai’s eloquent qualitative commentary. Meanwhile, I took the liberty of sharing my rambling on this apsect.
From 23-Sep, Nifty 50 fell 10%. All the consumption oriented B2C names have fallen ~1.5x to 3x of the Nifty’s fall, which is not uncommon. [snapshot below]. Considering India’s consumption potential, all B2C names will flourish with time as they have proven, profitable, and scalable business. As all have corrected, it seems to be an outcome of prevailing equity market correction and industry headwinds due to demand slowdown.
Asian paints competitor is giving free tinting machines, higher dealer margins and 10% free paint offers. Since they are luring the dealers for sales push, more than 10% OPMs are being distributed as incentives mentioned above and booking losses in their PnL. Paint industry players operate at OPM of 12~19%. All these schemes will either reduce drastically or stop as and when focus shifts from aggregating retail outlets to profitability, which the competitor intends to do over a 3 years time frame. Among all, Asian Paints has the highest OPM and can always use price lever if that remains the only tool to fight off the competition.
Business model of DMART and quick commerce (QC) companies are complementary with little overlap. DMART stands for maximum savings, bulk buying, and 1~2 times shopping for monthly groceries. QC stands for convenience and speed for items that are needed daily , immediately. or impulsively (high in value but weigh less). Hence, QC may shave-off some % of DMART stores SSSG if management remains aloof,which is not the case since it acknowledged the impact of QC publicly, but can’t harm the overall business model.
In the long run, I still wonder how quick commerce will make NET profits. EBITDA level breakeven is yet to be achieved, although the price of goods charged to the customer is at par. However, QC companies are on an expansion spree due to available funding. DMART will always be preferred by masses and occasionally by others.
Disc: No position in any of these names.
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