Target: ₹,5054

CMP:₹3,678.65

Avenue Supermarts (DMART) standalone sales grew by 25 per cent while retail footprint grew by 22 per cent Y-o-Y. DMART’s primary segment FMCG and staples continued its healthy momentum.

Gross/EBITDA margin declined 60/100bps YoY to 14.3/8.6 per cent led by lower contribution from GM&A category. Standalone EBITDA/PBT/PAT grew by 12/10/9 per cent respectively. 3-yr CAGR (3Q-FY20-3QFY23) sales/EBITDA/PAT stood at 19/18/18 per cent while retail footprint grew by 22 per cent.

We adjust our EPS estimate for FY23/24/25 by +0.7/-0.4/-4 per cent respectively.

We remain attracted by DMART’s sharp execution skills and large opportunity size. The organised grocery retail industry penetration is at 4-5 per cent in India giving enough headroom for the company to grow. Over time as the DMART brand has become more popular, store revenues have started accelerating at a faster pace than earlier. Within that, large metros bring in revenues faster and at higher absolute levels than smaller cities. We expect gradual recovery in LFL growth rate in coming years.

We maintain BUY rating valuing the stock at 85x 1HFY25E EPS estimates to arrive at a target price of ₹5,054.

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