Sell Avenue Supermarts; target of Rs 2160: HDFC Securities

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HDFC Securities' research report on Avenue Supermarts

D-MART finally hits the growth phase (after a disappointing 1HFY21). The grocer clocked a healthy 10% topline growth (HSIE: 8.5%). While gross margin delivery was strong (15.1% vs HSIE: 14.8%), its underpinnings remain weak (on the back of lower discounting in staples). Non-essential sales remain weak. EBITDAM expanded 52/256bp YoY/QoQ to 9.3% courtesy strong cost control. (HSIE: 9%). While we increase our FY22/23 EPS estimates by 5-6% resp. to account for marginally higher revenue/sq. ft, we downgrade the stock to Sell (Earlier Reduce) as the recent run-up leaves no room for an investment case (DCF-based TP: 2,160/sh – implying 34x FY23 EV/EBITDA + 2x FY23 sales for e-comm business).

Outlook

We downgrade the stock to Sell with a DCF-based TP of Rs. 2,160/sh, implying 34x FY23 EV/EBITDA for std biz + 2x sales for e-comm business).

For all recommendations report, click here

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