Patna-based consumer durable retailer Aditya Vision is slowly and steadily becoming a mainstream name. Domestic broking firm Emkay has initiated coverage on the stock with a target price of Rs 5,000, indicating a 52 percent upside from the current level. The company has been in the spotlight ever since Ashish Kacholia picked a 2-percent stake earlier in 2023. This was followed by HDFC Mutual Fund buying a 4-percent stake in the company last quarter. The BSE-listed stock moved from SME board to mainboard in 2021 and is currently trading near the Rs 3,280 levels.
According to Emkay, Aditya Vision has better growth prospects but its valuation is at 35-50 percent discount to retail peers. This provides scope for re-rating.
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"The company holds leadership share of over 50 percent in Bihar/Jharkhand, aided by low penetration so far, curated assortment, competitive pricing, Buy & Win scheme, and impeccable service/consumer trust," noted Emkay.
"AVL has passed the litmus test of scale and is now a well-oiled machine to pursue the 5x expansion opportunity in six states of the Hindi Heartland," as per the domestic broking firm.
Aditya Vision is also focused on making in-roads in adjacent regions of Uttar Pradesh, Madhya Pradesh, Chhattisgarh, and West Bengal. Combined with Bihar and Jharkhand, the targeted Hindi Heartland has a large population base of ~45 crore. To Aditya Vision's advantage, the presence of other organised chains is limited in these regions.
"With broader tailwinds, AVL would leverage its well-oiled business machinery to 5x its FY23 store-count of 105 by FY35E, thus granting confidence for long-term growth," said Emkay.
As new stores mature, same-store sales growth (SSSG) - an important metric for retail stocks - is expected to remain above 20 percent.
‘Better-than-the-best’ payback period
Payback period is essentially the time it takes to recover the cost of an investment and reach breakeven point. For Aditya Vision, the payback period is 3 years, and it outshines the best retailers across categories, said Emkay.
"Consumer-durable retail is a unique business model, wherein success is contingent on scale, cost structure and support from original equipment manufacturers, as gross margin is in the low 10-15 percent range," the initiation report explains.
With an asset-light and low-cost model, Emkay expects Aditya Vision to post a revenue-led EBITDA CAGR of over 30 percent during FY23-27E and in the mid-teens over FY27-35E.
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