Buy Avenue Supermarts; target of Rs 4420: Motilal Oswal

Motilal Oswal is bullish on Avenue Supermarts recommended buy rating on the stock with a target price of Rs 4420 in its research report dated July 26, 2023.

Broker Research

July 30, 2023 / 11:10 IST

Buy

Motilal Oswal's research report on Avenue Supermarts

At its analyst meet, DMART reiterated its strategy of ‘Everyday low cost, Everyday low price’ across Food, FMCG, GM, Apparels and DMart Ready. Following are the key highlights of the event: The company targets to add 40 stores in FY24. The timing is a challenge due to longer cycles of turnaround and issues like the availability of larger stores and inflation-led high property prices. In the general merchandise and apparels category (GM&A), general merchandise is mainly impacted by macro factors, but the apparels category is facing both macro factors and increased competitiveness. However, we believe new categories (like Pharma, etc.) should offset the impact. The management is optimistic about the e-commerce business and has expressed reasonable clarity that it may not report significant losses. It will focus on the existing 22 cities and big-basket buying through both store pick-up and home delivery channels. The gross margin impact from GM&A is cushioned by the strategy of direct procurement from grocery brands. Usually 30-35k sqft stores mature in about three years, while larger stores (~45k sqft) mature in four to five years, giving the company potential to grow more. We factor in revenue/PAT CAGRs of 26%/27% over FY23-25E on the back of 16%/9% area/revenue productivity. Maintain BUY.

Outlook

We factor in revenue/PAT CAGRs of 26%/27% over FY23-25 on the back of 16%/9% growth in footprints/revenue productivity. We value the company at 43x FY25E EV/EBITDA to arrive at a TP of INR4,420. We reiterate our BUY rating on the stock.

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