Avenue Supermarts - Q1 FY22 Results First Cut - YES Securities

Soft quarter with restricted operations, but witnessing a strong recovery; maintain positive stance

- Result summary - Overall weak quarter with both revenue and margins impacted by lower operational hours during the quarter but traction is building up on all fronts with operations and inventory normalizing, supply chain stable and construction activity resuming. Revenue/EBITDA/PAT growth of 31%/103%/132% respectively.

- Topline - Revenue up 31% yoy to Rs 50.3bn on a low base (Still about 19% below 1QFY20 levels) despite much lesser hours of operations led by higher footfalls given lesser restrictions on personal mobility. 22 new stores opened post 1QFY21 also contributed to increased sales.

- Margins - Gross margins came in below expectations at 12.4% (13.7% last year) given the inferior mix and higher discounts while EBITDA margins were impacted sharply due to negative operating leverage coming in at 4.4% (2.8% last year).

- COVID impact - Given a much stronger set of restrictions in the second wave, company lost significantly more days or had higher restrictions in store operations vs last year. No significant impact on supply chain, inventory gradually normalizing, construction activity commenced at all sites.

- Outlook on normalization - Management estimates that a store needs 45 days of unhindered operational time to get back to pre-COVID sales momentum.

- DMart Ready - Topline grew sharply at 199% yoy and 38% qoq to Rs 1.5bn with EBITDA margins at +2%. Second wave has given strong impetus to the online business with gradual expansion in MMR, Ahmedabad, Pune, Bangalore and Hyderabad.

- Store expansion - 4 new stores opened during the quarter to take the total number to 238.

- Our view - After the recent outperformance, the stock is currently trading at 88x FY23E P/E and 58x EV/EBITDA. We had turned positive on the stock a few quarters back and the stock has performed well despite concerns on COVID disruption and increasing competition from online grocery players. With near-term operational risks receding and our continued belief in the scalability of the model, we see a long growth runway for the company which should help it sustain premium valuations. Increased focus and increasing traction in DMart Ready and a strong cash position which places the company in a good position to lock in real estate for the next 3-4 years at attractive terms are further positives. We currently have an ADD rating with a TP of Rs 3,205 which we will review post the investor meet on 22 July.

Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.3347.05 as compared to the previous close of Rs. 3378.95. The total number of shares traded during the day was 109734 in over 7769 trades.

The stock hit an intraday high of Rs. 3399 and intraday low of 3311.7. The net turnover during the day was Rs. 369268861.

Source : Equity Bulls

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