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Edelweiss Securities
Avenue Supermarts (Reduce)
Target: ₹3,966
CMP: ₹4,506.2
Avenue Supermarts (DMart) reported an in-line Q3FY22 performance despite a slight gross margin miss (14.9 per cent versus 15.1 per cent estimate; Q3-FY20: 15 per cent).
Other highlights: i) Sales recovery – disclosed earlier – at 91 per cent (on revenue/sq.ft) did lag our initial expectations of 100 per cent recovery. ii) Store additions (17 in Q3-FY22) is on course to meet the target of a total of 60 over FY20–22. iii) Management commented the general merchandise & apparel business is consistently making relatively low contribution to sales while essentials and FMCG is doing better.
Based on the commentary, we anticipate greater impact on the sub-category of apparel & footwear within GM & Merchandise. DMart managed to keep a check on expenses, due to which EBITDA margin at 9.7 per cent came in line with estimates.
Store additions did accelerate with addition of 17 stores/0.9mn sq.ft, one of its largest additions in a quarter and DMart’s largest addition since Q4FY20. The company has overall added 29 stores for the year and is on course to meet its target of 60 additions (over FY20–22.
Given the pace of recovery, we are tweaking FY22 revenue/EBITDA down by 3 per cent. Our FY23/24 estimates remain unchanged. We continue to value DMart at 65x EV/EBITDA but are rolling forward the valuation to Q1-FY23, which yields a revised Target Price of ₹3,966 (₹3,782 earlier)
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