Shwapno, the market leader in the super shop (modern trade) sector posted another remarkable revenue growth in FY 2022-23 but the company is still bleeding money as it continues to incur losses.
The company with over 50% market share in the supershop sector is an interesting case study as it continues to incur losses despite making bold moves towards revenue growth.
Let’s look at the key takeaways from FY 2022-23 financial statements.
Remarkable Revenue Growth in FY 2022-23
After a modest growth in FY 2021-22 which was mainly hampered due to the coronavirus pandemic, Shwapno has posted its highest revenue growth in the last 5 years. In FY 2022-23, the company posted a growth of 31.9% YoY. The growth was mainly driven by the introduction of new outlets. As per the statement in the Annual Report, the company introduced 136 new outlets in FY 2022-23. Net Growth (Including closures) is 97 outlets in FY 2022-23.
But is it Quality Growth?
But there is a finer detail that needs noticing. Average sales per outlet of Shwapno have been continuously decreasing over the years. In FY 2016-17, each outlet used to contribute about Tk 141.5 million in revenue on average. However, that number has gone down to only Tk 51.9 million in revenue on average.
Now the explanation for the decline in average revenue per outlet is the expansion of franchise outlets (Express). The franchise outlets of Shwapno are significantly smaller compared to the owned stores of the company.
Hence there is a significant dip from the FY 2016-17 numbers. But in FY 18-19 or FY 19-20, there were a significant number of franchise stores. Hence, the decline in average revenue per outlet compared to the recent years questions the quality of outlet expansion of the company.
Operating Profit for the second consecutive year
Shwapno posted operating profit for the second consecutive year as it is prioritizing operational efficiency. Operating expenses compared to revenue declined to 18.0% in FY 2022-23. It was 18.4% in FY 2021-22 and it used to be over 20% in FY 2017-2018. Although due to lack of detail, it is hard to pinpoint the actual segment where the company is getting efficient, overall Shwapno’s achievement of operating profit is a move in the right direction.
High Debt Keeps on dragging the company into losses
The main reason for the company’s loss is the high debt servicing cost. In FY 2022-23, Shwapno incurred financial expenses of Tk 1,537.6 million which pushed the company into a net loss of Tk 1,529.0 million. The company took high debt during the expansion period which is restricting the money to post net profit. Not only that, but the high debt situation also puts the ACI group into a difficult situation as it has given a significant amount of intercompany debt.
Total debt of the company increased by 17% YoY to Tk 19,371.2 million in FY 2022-23. About 57.6% of the total debt is intercompany borrowings. Shwapno took a debt of Tk 11,163.8 million from its parent company ACI Ltd.
Moreover, intercompany borrowings of the company increased by 29.8% compared to the same period last year.
It is a worrying sign as it is not only dragging down Shwapno but also its parent company ACI Ltd. Due to the gradual losses the company has negative equity and relies heavily on debt financing to run its operation.
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