Edelweiss recommended hold rating on Avenue Supermarts with a target price of Rs 1442 in its research report dated May 07, 2018.
Edelweiss' research report on Avenue Supermarts
Avenue Supermart’s (Dmart) Q4FY18 revenue, EBITDA and PAT growth of 22.5%, 41.8% and 72.9% YoY came below estimates. As against SSSG run rate of >20% YoY in past few years, SSSG for FY18 stood at 14.2% YoY, an outcome of price cuts post GST and rising competitive intensity from, inter-alia, Big Bazaar. Pace of store additions picked up in Q4FY18 – added 14 stores, taking the total store addition to 24 for FY18. Expansion in gross and EBITDA margins continued (up 70bps and 105bps YoY, respectively), an outcome change in product mix (>150bps mix change from low margin foods to high-margin general merchandise) and better efficiencies. Heightened competition, incremental store addition and SSSG run-rate will remain key monitorables. Maintain ‘HOLD’.
Dmart is a play on the Indian retail story and we estimate it to post revenue, EBITDA and PAT CAGR of 22.9%, 28.2% and 28.4%, respectively, over FY18-20. On the likelihood of margin expansion potential continuing, we have raised our target multiple from 35x to 40x FY20E EV/EBITDA and pegged our revised TP at INR1,442 (earlier INR1,290). However, we perceive limited upside from current levels and hence maintain ‘HOLD/SU’. At CMP, the stock is trading at 41.3x FY20E EV/EBITDA.
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