ICICI Direct recommended hold rating on Avenue Supermarts with a target price of Rs 2360 in its research report dated August 05, 2020.
ICICI Direct's research report on Avenue Supermarts
We attended the annual conference call on Avenue Supermarts (D-Mart) to get an insight into the outlook and challenges lying ahead owing to the Covid-19 pandemic. Majority of the questions (as anticipated) were pertaining to future plans regarding its e-commerce play (‘DMart Ready’) and views on intensified competition from new entrants with deep pockets. The management reiterated its stance of not aggressively foraying into e-commerce play and rather focusing on further consolidating its position to be an eminent player in the brick & mortar format. Over the years, D-Mart, through its proven business model, has been able to maintain consistent profitability and remains an exceptional performer in its peer group. Currently, ~95% of stores are operational, with stores seeing 80% of pre-Covid sales.
The near term outlook remains challenging given the uncertain scenario and various limitations on store operations due to strict lockdowns enforced by local authorities (that would impact footfalls). The company continues to have a healthy liquidity position (~Rs 3000 crore) with a strong balance sheet. D-Mart has proven to be a resilient business model generating superior RoIC of 23% and healthy fixed asset turnover ratio of 4.1x. We build in revenue and earnings CAGR of 21% and 29%, respectively, in FY20-22E. We reiterate our HOLD rating with a target price of Rs 2360 (45x FY22E EV/EBITDA).
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