Geojit Financial

Avenue Supermarts (Buy)

Target: ₹3,130

CMP: ₹2849.65

Avenue Supermarts Ltd (DMart) owns & operates India’s most profitable supermarket, DMart. It provides products like Food, Non-Food (FMCG), General Merchandise & Apparel through 234 stores (total 8.82mn sq. ft).

We upgrade to Buy rating with a revise target price of ₹3,130 factoring strong recovery in the quarter and recent correction in stock price.

For Q4-FY21, DMart reported healthy growth in revenue at 18 per cent Y-o-Y & strong growth in PAT at 52 per cent Y-o-Y (de-growth in first two quarters). EBITDA/PAT margins improved by 170/130 bps YoY each to 8.4 per cent/6 per cent aided by improvement in sales & gross margin.

Witnessing significant disruptions in operations due to Covid second wave. Nearly 80 per cent of stores are operating fewer hours than they normally do and this may negatively impact on inventory to sales ratio.

DMart added 22 stores in FY21 Vs 38 Y-o-Y. Additions are likely to be impacted in the short-term, but do not expect disruptions like last year.QIP of Rs.4,098cr supports additions and boost future sales growth.

Revenue/PAT to grow at 37 per cent/50 per cent CAGR over FY21-23, value DMart on DCF basis implying 75x on FY23E EPS.

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