Avenue Supermarts - Q2FY21 Company Update - ICICI Securities

Avenue Supermarts' results were a mixed bag with lower-than-expected revenue performance but a beat on EBITDA for Q2FY21. Nonetheless, the management's commentary had a positive bias with the scenario matching normalcy levels. Despite 95% of stores resuming operations, stringent measures by local authorities had an impact on working hours. By August, most stores started operating at pre-Covid operating hours. Withstanding challenges, D-Mart's core 'Food & FMCG' segment (currently ~77% of sales) has reverted to the growth path with positive trajectory seen across all stores in September. Discretionary categories (GM & apparels) are currently laggards owing to subdued demand but are gradually picking pace (revenue contribution: 22.7% vs. 27.3%; implied de-growth 26% YoY). In the first half of FY21, the company incurred capex worth Rs. 651 crore (vs. Rs. 768 crore in H1FY20) and added eight new stores (vs. 13 additions in H1FY20). It has also shut two stores and converted them to fulfilment centres (FC) to scale up its e-commerce business ('D-Mart Ready'). Further, it has expanded its e-commerce operations in select pin codes of Pune. Trends indicate enhanced focus on e-commerce owing to change in industry dynamics with grocery e-commerce industry gaining significant traction during the pandemic.

Valuation & Outlook

Over the years, D-Mart has proven to be a resilient business model generating superior RoIC of 23% and healthy fixed asset turnover ratio of 4.1x. Of the total QIP proceeds (Rs. 4078 crore), the company has utilised Rs. 1213 crore mainly towards retirement in total debt (~Rs. 700 crore). Robust liquidity position expected to provide impetus to store addition pace (mainly from FY22E onwards). Near term headwinds may have negative impact on the performance in FY21E but we remain structurally positive on the company and its long term growth prospects. We build in revenue and earnings CAGR of 19% and 24%, respectively, in FY20-23E. The stock price has corrected ~15% since our last update. Hence, we upgrade our rating from HOLD to BUY with a revised target price of Rs. 2300 (38.0x FY23E EV/EBITDA, previous TP: Rs. 2360).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_AvenueSupermarts_CoUpdate_Oct20.pdf

Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.1983.6 as compared to the previous close of Rs. 1977.7. The total number of shares traded during the day was 32408 in over 4197 trades.

The stock hit an intraday high of Rs. 1998 and intraday low of 1969.8. The net turnover during the day was Rs. 64120442.

Source : Equity Bulls

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