Avenue Supermarts to fully acquire e-commerce unit

Food and grocery retailer Avenue Supermarts is acquiring the balance 50.79% stake in its associate firm Avenue E-Commerce Ltd (AEL). The operator of D-Mart supermarket chain will pay Rs 49.21 crore in an all-cash deal to buy out other AEL shareholders, some of whom are also promoters and shareholders of ASL.

The retailer also reported a 65.8% jump in net profit ar Rs 252 crore for the third quarter, as compared to the same period last fiscal. Total revenues increased 22.64% year-on-year at Rs 4,095 crore while earnings before interest, tax, depreciation and amortisation (Ebitda) was up 46.3% at Rs 422 crore over the corresponding quarter last year.

At present, ASL holds 49.21% of AEL and post the completion of this acquisition before February 15, 2018, AEL will become a wholly-owned subsidiary of ASL.

Speaking to DNA Money, Neville Noronha, chief executive officer and managing director, ASL, said, the company wanted to get into the e-commerce business but the ASL Board wasn't very confident considering the amount of risk capital needed for the same. "Three years ago, the promoters agreed to bring in the risk capital to ensure there is no impact on the ASL business. As a result, the control (of the e-commerce business) was with them so far. Now that we have got visibility around the cost structure in the future, ASL and its board is now confident about investing further in the business.

"This deal was always on the horizon and was just a matter of time for it to happen. We now felt that it was an opportune time for the ASL promoters to transfer the balance shareholding in AEL thus making it a 100% subsidiary of ASL," he said, adding that additional stake in AEL is getting acquired from ASL promoters and promoter family.

The e-commerce business, which is still not profitable, began operations in December 2016 in some locations of Mumbai and had registered a turnover of Rs 1.2 crore (Rs 12,062,841) for the financial year 2016-17.

The company's Ebitda margin improved from 8.6% in December 2016 quarter to 10.3% in the third quarter of fiscal 2018. Its profit after tax (PAT) margin improved from 4.5% in Q3FY17 to 6.1% in Q3FY18.

Commenting on the business, Noronha said, gross margin increase is due to improvement in sales mix and efficiency of centralised procurement. "Growth in this quarter appears to be lower as compared to previous year quarter because of demonetisation base effect. Growth in December 16 quarter was significantly higher than the growth of FY16-17. The speed of opening new stores has to improve. There is an opportunity to do better there," he said. The company opened 10 stores in the nine months of fiscal 2018 of which five were opened in the December 2017 quarter.

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• Post the completion of this acquisition, AEL will become a wholly-owned subsidiary of ASL
   
• Currently, ASL holds 49.21% of Avenue E-Commerce Ltd