Buy Avenue Supermarts Ltd For Target Rs. 4,471 By Geojit Financial Services Ltd
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Topline growth slowed, gross margin improved
Avenue Supermarts Ltd. (DMart) owns & operates India’s most profitable supermarket chain, DMart. It provides products like food, non-food (FMCG), general merchandise & apparel through 377 stores (total 15.8mn sq. ft).
* Revenue grew by 14%YoY, while gross margin improved by 20bpsYoY to 14.2% due to an improved product mix. Like-for like growth (for stores operational for at least 24months) declined to 5.5% from 8.6% YoY.
* EBITDA grew by 10%YoY as EBITDA margin declined by 30bps YoY to 7.9% due to higher employee costs and other expenses.
* General merchandise & apparel category mix which commands a higher margin has improved to 23.45% in H1FY25 vs. 23.21% YoY. The upcoming festive season is expected to support further improvement in the mix.
* DMart added 12 stores in H1FY25 vs. 12 YoY (41 stores in FY24), which, along with the likely improvement in demand, will aid improvement in topline growth.
* DMart is gradually improving its E-Com business channel, ‘DMart Ready’, currently available in ~24 cities, which now contributes ~2.7% of total revenue. DMart Ready business grew by 21.8% YoY in H125. Topline growth slowed, gross margin improved Author: Vincent K A - Sr. Research Analyst Sector: Retail stores 29th October 2024 Data as of: 28-10 2024 Outlook & Valuation The rise of online grocery formats especially in large metro cities which operate at a very high revenue per sq.ft has caused a moderation in the topline growth. We expect the demand to improve in H2FY25 given upcoming festive season. DMart has strong growth potential given its healthy balance sheet with no debt and strong operational efficiency. Strong store additions will aid future revenue growth, while lower inflation will improve discretionary demand and margins. We expect Revenue/ PAT to grow at a 20%/23% CAGR over FY24-26E. DMart currently trades at 71x 1Yr Fwd PE. We revised our target to Rs.4,471 (earlier Rs. 5,310) by valuing on a DCF basis which implies 64x on Sept 2026 EPS.
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