Prabhudas Lilladher recommended hold rating on Avenue Supermarts with a target price of Rs 2055 in its research report dated August 05, 2020.
Prabhudas Lilladher's research report on Avenue Supermarts
We Upgrade D’Mart to Hold from reduce as we shift from PE multiple to DCF based target price of Rs2055 (Rs1695 earlier, based on 46xFY23 EPS) assuming 7.5% terminal growth. We cut FY21/22/23 EPS estimates by 4.2%, 4.9% and 5.1% respectively given near term issues like 1) shift of demand from Hypermarts to Kirana and Ecom 2) slow pick-up in apparel and general merchandise 3) setback to Premiumisation as upper middle class cuts store visits 4) volatility due to localized lockdowns from time to time and 5) lower store openings in current year as Covid 19 has hit construction for 4 months. We assume addition of 20/40 stores in FY21/FY22 and decline of 6% in Bills/store/day and 4% in average bill value. D’Mart trades at 62xFY23 EPS. D’Mart is also experiencing with a convenience store in D’Mart Ready, although it remains confident on sustained scalability of its Brick and Mortar model. We believe D’Mart has a robust model, however fast consumer transition to Ecom by skipping modern trade remains a threat.
D’Mart needs to close the loop in Ecom given sustained industry consolidation with Big Basket/Grofers in online and likely emergence of Reliance retail as a formidable hybrid retail model if it acquires Future retail. We estimate 22% PAT CAGR over FY20-23 despite 4.5% PAT decline in FY21. Upgrade to Hold.
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