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Avenue Supermarts - Profitability, unit economics in line - HDFC Securities



Posted On : 2021-10-18 22:39:19( TIMEZONE : IST )

Avenue Supermarts - Profitability, unit economics in line - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

D-MART's Q2FY22 revenue recovery was healthy (47% growth YoY). Profitability and unit economics were in line but have not yet caught up with the pre-pandemic levels. Lower-than-expected GM (14.3% vs HSIE: 14.6%) suggests non-essentials' contribution remains lower than at the pre-pandemic levels (though it is improving). Better cost controls cushioned the impact on EBITDAM (8.8%, up 253bps; HSIE: 8.7%). INR25/40.8bn of QIP money stands utilised. We maintain our SELL recommendation on DMART with a revised DCF-based TP of INR 2,700/sh (earlier 2,260/sh), implying 35x Dec-23E for the standalone business + 4x Dec-23E sales for DMART Ready. Note: the target price change is a function of EPS change (+4%), a 6M DCF rollover (+9%), and a marginal multiple increase (+4%).

Q2FY22 highlights: Revenue grew 46.6% to INR76.5bn (2-year CAGR: 13%). Revenue/EBITDA per sq. ft came in at INR32.4/2.8k per sq. ft, remains 10% shy of DMART's typical run rate. Mature (187) stores grew 23.7% YoY (Sep-20 vs Sep-21). Lower-than-usual GM (14.3% vs HSIE: 14.6%) suggests non-essentials' contribution remains below pre-pandemic levels. Better cost control cushioned the impact on EBITDAM (8.8%, up 253bps; HSIE: 8.7%). DMART added eight stores in Q2 (store count: 246). Working capital efficiency remains elevated and unit economics is estimated to be ~640bps lower than pre-pandemic levels. INR25/40.8bn of QIP money stands utilised.

Outlook: DMART's anchor variable (footfalls) and consequently unit economics remain sub-optimal (improving though). While we factor in a full recovery in the next 2-3 quarters, this assumption can be challenged by heightened competitive intensity from deep-pocketed retailers. Hence, we maintain our SELL recommendation on DMART with a revised DCF-based TP of INR 2,700/sh (earlier 2,260/sh), implying 35x Dec-23E for the standalone business + 4x Dec-23E sales for DMART Ready.

Shares of Avenue Supermarts Limited was last trading in BSE at Rs. 4894.90 as compared to the previous close of Rs. 5329.65. The total number of shares traded during the day was 338841 in over 82663 trades.

The stock hit an intraday high of Rs. 5899.90 and intraday low of 4850.10. The net turnover during the day was Rs. 1754912881.00.

Source : Equity Bulls

Keywords

AvenueSupermarts INE192R01011 DMART HDFCSecurities