IGI Logo

* Avenue Supermarts’ (DMART) consolidated PAT grew 8% YoY (25% miss), despite a 21% YoY increase in revenue, driven by the expansion in the company’s footprint. This was due to a.) weak demand in the margin accretive discretionary category, resulting in a 100bp drop in GM. Additionally, store productivity remained flat with no increase in revenue/sqft, likely due to larger store sizes.

* Over the last three years, Dmart has been adding larger stores to their retail chain. With these larger stores, the company expects to see an increase in store productivity. The previously smaller stores are expected to experience a growth plateau after ~ 3 years. This, along with gradual recovery in discretionary demand, general inflation cool off, softening RM pricing and healthy cost efficiency may see improvement in earnings growth.

* While the robust store adds, coupled with strong cost efficiencies, could play a key role in growth, the near-term challenges within the discretionary segment and rich valuations could be the key monitorables for the company. We have factored revenue/PAT CAGR of 26%/29% over FY23-25E, (realigning PAT downwards by 12%/3% for FY24/25E). Subsequently, we assign a 40x EV/EBITDA multiple on a FY25 basis to arrive at a TP of INR3,895. We reiterate our Neutral stance on the stock.

Consol. EBITDA/PAT up 4%/8% YoY (big miss), dragged by weak GM

* Consolidated revenue grew 21% YoY to INR105.9b (11% miss), largely driven by 14% store area addition. Standalone revenue grew 20% YoY to INR103.4b in 4QFY23.

* Blended revenue per sqft (annualized) remained flat YoY for 4QFY23, at ~INR31,800 (5% below pre-covid), while revenue per store improved 4% YoY to INR1.3b, mainly on account of increased average store size.

* Consolidated gross margin declined 100 bp YoY and stood at 14% (70bp below est), which could mainly be on account of persisting stress within the non-food and merchandise category. Standalone margins contracted 90bp YoY to 13.4%.

* Consolidated EBITDA reported a growth of 4.4% YoY to INR7.7b (20% miss) as higher revenue growth was dragged by higher RM. Standalone EBITDA grew 5% YoY to INR7.8b. Employee and Other expenses, on a per sq.ft. basis, were down 3%/up 7% YoY; but still below pre-Covid levels.

* Resultantly, consolidated PAT grew 8% YoY to INR4.6b (25% below estimate). Standalone PAT too reported an 8% growth YoY and stood at INR5.1b.

* The company turned FCF positive to INR4.2b, after adjusting for capex of INR22.1b. This was led by a 92% YoY improvement in OCF to INR26.8b, led by better earnings and improvement in working capital.

* DMART added 18/40 stores in 4QFY23/FY23, taking the total count to 324.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer