Motilal Oswal

Avenue Supermarts (Neutral)

Target: ₹3,220

CMP: ₹3,347.05

The revenue recovery in Avenue Supermarts (DMART) has been much better than that during the previous lockdown, growing 33 per cent y-o-y (13 per cent below pre-Covid levels). Gross margin declined by 110bp YoY, despite the base quarter having seen a severe impact on the margin accretive Discretionary category due to Covid-19.

We have largely maintained our estimates and expect a buoyant recovery from 2QFY22 onwards, factoring in 24 per cent revenue/PAT CAGR over FY20-23. We see a limited upside given the rich valuations.

We expect DMart to deliver FY20-23 revenue/PAT CAGR of 24 per cent each, factoring in 30/40 store additions and nearly 50 per cent single store sales growth in FY22/FY23. Unlike other retailers, grocery retailers like DMart have seen a swift recovery once COVID related restrictions were lifted and a healthy margin improvement.

The stock is trading at rich valuations (55.3x FY23E EV/EBIDA and 87.4x FY23E P/E).

Expensive valuations; risk of a moderation in growth, owing to strong traction for online retailers in a post-Covidworld; and the presence of deep pocket players like Amazon and Reliance Retail restricts the near-term upside.

We value DMART at 52x FY23E EV/EBITDA (which is around its average multiple of ~57x).

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