Avenue Supermarts Q4FY21 Results Review - In-line performance; FY22 recovery tapered down - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

D-MART delivered largely an in-line performance across most KPIs in 4Q. Topline grew 18% YoY. GPM/EBITDAM expanded 117/170bp YoY to 14.4/8.4% (HSIE: 14.9/8.6%). Topline remained essentials heavy, as expected. However, the rub lies beyond the FY21 print. Management highlighted that the second COVID wave has been more painful as (1) ~80% of stores were operating at ≤4 hours/day or are shut down momentarily and (2) a more optimistic inventory plan post the unlock has led to a problem of excess inventory since the second lockdown. While we taper down our FY22 recovery/profitability expectations, our FY23 EPS estimates remain largely unchanged (-3%). We maintain our SELL recommendation and DCF-based TP of INR 2,160/sh (implying 35x FY23 EV/EBITDA for std biz + 4x sales for e-comm business).

4QFY21 highlights: Revenue grew 17.9% to INR73bn (in-line). GM/EBITDAM expanded 117/170bp YoY to 14.4/8.4% (HSIE: 14.9/8.6%) resp. DMART added 20 stores YoY in 4Q (now: 234 stores). Mature stores (≥ 2 year old) grew 6% in Jan-Feb-21. The first half of March-21- took a beating (-9.4%), courtesy full/partial lockdowns across key cities. The second COVID wave has been more painful for DMART as (1) ~80% of stores were operating at ≤4 hours/day or are shut down for a few weeks/on weekends and (2) a more optimistic inventory plan post the unlock has led to a problem of excess inventory since the second lockdown. This could translate into a working capital-heavy FY22. C-WIP has jumped meaningfully to INR 10bn+, given that construction activity has stalled momentarily.

Outlook: While DMART remains best-placed within the peer set to carve out a recovery, it's still not out of the woods as the anchor variable - footfall - remains sub-optimal. Note: FY21 Bill cuts per store/AoVs are down/up 34/27.5% YoY resp. We have tapered down our FY22 recovery/profitability estimates. However, our FY23 EPS estimates remain largely unchanged (- 3%). Hence, we maintain our DCF-based TP of INR 2,160/sh (implying 35x FY23 EV/EBITDA for std biz + 4x sales for e-comm business).

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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