Q4FY21 Result Update - Avenue Supermarts - ICICI Direct

D-Mart reported its Q4FY21 results that were above our estimates across all parameters. The key highlight of the results was better than expected gross margins on the back of a swift recovery in general merchandise & apparel segment in Q4FY21. As guided by the management in its pre-quarterly update, Avenue Supermarts reported steady topline growth of 18.5% YoY to Rs. 7411.7 crore. SSSG (two years & older stores) for January-February was at 6% YoY while the trajectory fell significantly to -9.4% for the first 15 days of March primarily due to partial lockdowns. Gross margins improved 120 bps YoY to 14.8% despite increase in RM prices and supply side constraints for non-FMCG segment. It saw a strong recovery in discretionary spending in Q4FY21. Agile opex management (other expenses and employee cost up 13%, 8% YoY, respectively) led EBITDA margins to expand 160 bps YoY to 8.3% (down 90 bps QoQ, I-direct estimate: 6.6%). EBITDA grew 47% YoY to Rs. 612.7 crore. Given higher dependence on the most impacted regions (32% stores in Maharashtra, 18% in Gujarat), local restrictions have progressively increased in April and May with ~80% of stores operating for significantly lower number of hours).

Valuation & Outlook

For FY21, the company reported marginal revenue de-growth of 3% with SSSG coming in at (-) 13.1% (vs. 10.9% in FY20). Despite share of revenues from general merchandise & apparel segment declining ~440 bps YoY to 22.9% in FY21 (which yields higher gross margins), the company has managed to maintain its gross margins for the year with contraction of mere 28 bps YoY to 14.9%. On the balance sheet front, inventory days increased by ~5 days to 34 days in FY21 (FY20: 29 days). The management highlighted that it is saddled with excess inventory that it had built owing to surge in sales in Q3 and Q4FY21. It generated operating cashflows worth Rs. 1360 crore with negative FCF of ~ Rs. 670 crore. However, the company continues to have robust liquidity position with cash & investments worth ~Rs. 2600 crore as on FY21 (FY20: Rs. 3250 crore). Owing to regional lockdowns and restriction on selling of GM & apparel, we prune our revenue and earnings estimates by 10% and 16%, respectively for FY22E and bake in revenue and earning CAGR of 21% and 25%, respectively, in FY20-23E. We reiterate HOLD rating and maintain target price of Rs. 3130 (50x FY23E EV/EBITDA).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_AvenueSupermarts_Q4FY21.pdf

Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.2888.75 as compared to the previous close of Rs. 2878.05. The total number of shares traded during the day was 17826 in over 1850 trades.

The stock hit an intraday high of Rs. 2954.95 and intraday low of 2851. The net turnover during the day was Rs. 51929401.

Source : Equity Bulls

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