Prabhudas Lilladher's research report on Avenue Supermarts
We believe high inflation has impacted the discretionary spends in 3Q which surprisingly impacted even a deep value retailer like D’Mart. While grocery centric D’Mart Ready ramp up and competition could be other reasons, but we remain confident of the business moat of D’Mart, both in offline and D’Mart ready model. While we cut estimates, our 4Q23 estimates now factor in 28% sales growth, 8% EBIDTA margins and 31% PAT growth. Given just 22 store openings in 9M23, we expect addition of 18 stores in 4Q. We estimate 27.8% YoY PAT CAGR over FY23-25 (ex of Rs1407.7mn tax write-back in FY23). We believe D’Mart has a huge runway to grow with 1500+ store potential (current stores 306) in a consolidated market and scale up in D’Mart Ready. Any meaningful correction can be used as a good entry point. Retain Buy.
We cut EPS estimates of D’Mart by 4.2/4.3/4.0% for FY23/24/25 and target price to Rs4675 (Rs4854 earlier) following disappointing margin performance in 3Q23 (106 bps YoY EBIDTA margin decline to 8.3%). Mix deterioration due to tepid growth in Apparel and general merchandise impacted margins. Cost of retail also moved up by 50bps YoY as operating leverage failed to benefit in a festival quarter.