Neutral Avenue Supermarts; target of Rs 3895: Motilal Oswal

Motilal Oswal's research report on Avenue Supermarts Avenue Supermarts’ (DMART) consolidated PAT grew 8% YoY (25% miss), despite a 21% YoY increase in revenue, driven by the expansion in the company’s footprint. This was due to a.) weak demand in the margin accretive discretionary category, resulting in a 100bp drop in GM. Additionally, store productivity remained flat with no increase in revenue/sqft, likely due to larger store sizes. Over the last three years, Dmart has been adding larger stores to their retail chain. With these larger stores, the company expects to see an increase in store productivity. The previously smaller stores are expected to experience a growth plateau after ~ 3 years. This, along with gradual recovery in discretionary demand, general inflation cool off, softening RM pricing and healthy cost efficiency may see improvement in earnings growth. While the robust store adds, coupled with strong cost efficiencies, could play a key role in growth, the near-term challenges within the discretionary segment and rich valuations could be the key monitorables for the company. We have factored revenue/PAT CAGR of 26%/29% over FY23-25E, (realigning PAT downwards by 12%/3% for FY24/25E). Outlook Subsequently, we assign a 40x EV/EBITDA multiple on a FY25 basis to arrive at a TP of INR3,895. We reiterate our Neutral stance on the stock. For all recommendations report, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Avenue Supermarts - 15 -05 - 2023 - moti