The ratings continue to reflect the strong market position of the company in the domestic organised food and grocery (F&G) retail market and its robust financial risk profile. These strengths are partially offset by modest, though improving, geographic reach and susceptibility to regulatory changes and intense competition.

Operating performance improved substantially year-on-year in the first nine months of fiscal 2022, with strong recovery in same-store demand compared with pre-pandemic levels, relaxation of constraints and store additions. Although sales were impacted in fiscal 2021 because of Covid-related curbs, restrictions on sale of non-food products and lower footfall, performance remained resilient, with only marginal degrowth of 3% and healthy cash accrual.

Furthermore, healthy operating profitability of 7.5-9% should sustain over the medium term despite moderating to 6.7% in fiscal 2021 because of suboptimal fixed cost coverage and lower proportion of high-margin merchandise in total sales. Overall profitability will be 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 the gross margin at around 15% despite increase in competitive intensity.

Financial risk profile should remain robust over the medium term, driven by strong cash accrual, absence of any long-term borrowings and healthy liquidity.

The credit risk profile of ASL will remain healthy over the medium term on account of its improving market position in the organised retail segment, strong annual cash generation and healthy financial flexibility, CRISIL said.

Avenue Supermarts is engaged in the organised retail business through its DMart chain of stores. As of December 2021, ASL had 263 hypermarket stores across 13 states and one union territory.

The company's consolidated net profit rose 23.62% to Rs 552.56 crore on 22.22% increase in net sales to Rs 9217.76 crore in Q3 December 2021 over Q3 December 2020.

The scrip shed 0.81% to end at Rs 4049.25 on the BSE.