Maintain REDUCE on Avenue Supermarts - Recovery tracking well - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

D-Mart's 2Q revenue decline was a forgone conclusion given its high exposure to some of the most impacted Indian districts. However, revenue recovery at 87.3% of the base quarter wasn't half as bad, in our view. Margin delivery remains reasonable too in the context of "essentials-heavy" consumer wallets. However, non-essentials sales have been progressively recovering (73% base quarter sales). Steady cash flow generation YoY in the backdrop of 12/37% top-line/EBITDA cut YoY is commendable. We maintain our FY22/23 EPS estimates and our Reduce recommendation with a DCF-based target price of Rs. 1,850/sh, implying 33.5x Sept-22 EV/EBITDA for standalone business + 2x sales for e-comm business).

2QFY21 highlights: Revenue declined 12.3% YoY to Rs. 52.2bn (HSIE: Rs. 53.4bn), courtesy the high exposure to some of the most impacted districts. Footfall recovery continues to lag revenue recovery, and AoVs remain elevated. However, management highlighted that trends in AoV and footfalls continue to mean-revert. Given the higher essentials skew in the mix, GM/EBITDAM contracted 102/244bp to 14/6.2% respectively (HSIE: 14/5.7%). That said, management highlighted that high GM non-essential portfolio continues to improve progressively. (73% of base quarter sales). Mature stores (>=2 years, 158 stores) have hit 87.5% of base month sales in Sept-20 and essentials portfolio grew YoY in Sept-20.

Outlook: DMART remains well-capitalised and best placed within peer set to carve out recovery, and while recent price correction (20%+) from its peak certainly make valuations more palatable, we continue to await even better entry points to make an investment case. Expect revenue/EBITDA/PAT CAGR of 19/23/23% over FY20-23E. Maintain Reduce with a DCF-based target price of Rs. 1,850/sh, implying 33.5x Sept-22 EV/EBITDA for standard business + 2x sales for e-commerce business).

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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