Axis Securities

Avenue Supermart (Buy)

Target: ₹3,100

CMP: ₹2,665.00

Axis Securities is initiating coverage on Avenue Supermart Limited (DMART) with a BUY recommendation and a target price of ₹3,100 which implies 16 per cent upside from the current levels.

DMART’s strong execution capability with a stellar execution track record, places it on top of the list among all Food & Grocery (F&G) retail players. We expect the company to deliver healthy growth over FY20-23 with a CAGR of nearly 23 per cent/24 per cent/25 per cent in Revenue/EBITDA/PAT respectively on account of: 1) Value retailing (consistency in providing discounts) remains the primary moat; 2) Low cost of operation (majority of the stores are company owned); 3) Continuous store expansion through a cluster based approach and healthy SSSG and balance sheet with no liquidity constraints.

DMART has maintained the lowest execution cost aided by a cluster-based expansion strategy, lowest operation cost among peers by outsourcing nearly 80 per cent employees and minimal rental cost despite capital intensive strategy. The company has maintained high ROE and ROCE in comparison to the industry. It has maintained healthy operating cash flows, asset turns (approximately 5 times) and EBITDA margins over the years making it a capital efficient business. Balance sheet remains strong and comfortable with Net Debt/EBITDA and Net Debt/Equity of -0.05x/ -0.01x respectively in FY20.

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