Hold Avenue Supermarts; target of Rs 4000: ICICI Securities

ICICI Securities recommended hold rating on Avenue Supermarts with a target price of Rs 4000 in its research report dated October 15, 2023.

Broker Research

October 16, 2023 / 14:43 IST

Hold

ICICI Direct's research report on Avenue Supermarts

DMart's performance continues to be unimpressive. Revenue growth appears to have been permanently marked down to ~20% CAGR since last two years. LFL growth at 9% in 1HFY24 is healthy but largely driven by outperformance in foods (21% YoY), followed by non-food (19% YoY), while GM and apparel remain weak (11% YoY). We believe the apparel segment (margin accretive) would be a long-gestation turnaround (report). Consequently, operating profit margin remained under stress. Retail expansion rate has been healthy, but a bulk of store addition (73% of FY24E) is likely in 2H. Geographical expansion continues to be conservative; in 1HFY24, it added ~50% stores only in the top-3 states (vs 42% during FY18-22). That said, we reckon DMart is a platform business, and the downside of this underperformance (in apparels) is limited, while all other strengths of the company remain intact. HOLD.

Outlook

We have cut our earnings estimates for FY24E / FY25E by 6%/1%; modelling revenue / EBITDA / PAT CAGR of 21% / 21% / 19% over FY23-25E. We maintain HOLD with a DCF-based revised target price of Rs4,000 (was Rs3,700 earlier).

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