Geojit recommended hold rating on Avenue Supermarts with a target price of Rs 1662 in its research report dated August 14, 2018.
Geojit's research report on Avenue Supermarts
Avenue Supermarts Ltd (D’Mart) owns & operates India’s most profitable supermarket, D’Mart. It provides products like Foods, Non-Foods (FMCG), general Merchandise and Apparel categories under 157 stores (5 million sq. ft). D’Mart continued to report a stupendous earnings growth of 43%YoY for Q1FY19 supported by strong revenue/EBITDA growth of 27%/39% YoY. Recent robust store additions supported growth, added 16 stores in last 2 quarters and is considering leased stores to accelerate growth further. Gross margins improved only 10bps as D’Mart sells at discount prices, however costs reduction resulted into EBITDA margin increase of 90bps. D’Mart has paid Rs899cr till Q1FY19 towards debt repayment out of total Rs1,080cr allocated from IPO proceeds which will reduce interest cost. We expect high growth to continue given accelerated store growth, debt reduction and tailwind from GST which support higher premium in the medium term.
We arrive at a revised Target of Rs1,662 (Rs1,590 earlier) on a DCF basis but downgrade to Hold (Buy earlier) due to premium valuation.
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