Prabhudas Lilladher's research report on Avenue Supermarts
Avenue Supermart (DMART IN) has corrected by 27% from 52-week high due to concerns on 1) slow post covid recovery in sales parameters 2) deterioration in sales mix 3) effectiveness of D’Mart to face onslaught of online retail on brick & mortar modern trade and 4) sustainability of growth & profitability metrics. We believe that the deterioration in sales parameters is a result of 3x increase in stores within emerging clusters and 100% increase in number of stores with <2 years’ vintage, which will correct over time. We remain positive on D’Mart Ready as it has increased city presence to 22, reduced delivery time to 1 day with reduction in delivery charges (Flat Rs49 as against 3% earlier). We believe attractive prices and far better consumer proposition than Big Basket (largest online retailer) will enable D’Mart Ready to turn EBIDTA positive by FY25 and PAT positive by FY27. We believe D’Mart has a huge growth runway ahead given low probability of heightened competition in modern trade, 1500+ store potential in existing clusters (current stores 306) and fast scale up in D’Mart Ready.
We estimate 25% PAT CAGR over FY23-27 and retain ‘BUY’ with DCF based target price of Rs4699 (Rs4675 earlier).
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