HDFC Securities is bearish on Avenue Supermarts has recommended sell rating on the stock with a target price of Rs 1750 in its research report dated May 24, 2020.
HDFC Securities' research report on Avenue Supermarts
4Q performance was certainly un-DMARTesque as one would’ve hoped D-MART to benefit from excessive hoarding of essentials by consumers during the COVID19-led lockdown. Alas, top-line grew 23% YoY in 4Q (11% YoY in March-20) to Rs. 61.9bn. Bigger disappointment was on the gross margin front (13.2% vs HSIE: 14.1%) as skew of lower margin Food/Non-Food FMCG increased by 670bp to 77.7% (implied) in 4Q. (Signficantly high given just 9 days of lockdown), Adj. EBITDA grew 4.7% to Rs. 3.94bn (vs HSIE: Rs. 4.37bn) as lower GM impact trickled down the P&L. Despite this, APAT grew 43% YoY to Rs. 2.9bn (in-line; on higher other income/lower tax-outgo). Cash position remains the strongest in class (QIP-led) and WC cycle has inched up.
Outlook
We have cut our FY21 EPS by 11% to factor in lower GMs, we largely maintain FY22 estimates and our SELL recommendation with a DCF-based TP of Rs. 1,750/sh, implying ~35x FY22 EV/EBITDA. Stock currently trades at 77/52x FY21/F22 EV/EBITDA.
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