Sell Avenue Supermarts; target of Rs 3200: HDFC Securities

sell

HDFC Securities' research report on Avenue Supermarts

Revenue grew by 18.1% (four-year CAGR: 19.0%). Sales density remains subpar vis-a-vis the pre-pandemic level (~INR34.2k/sq ft in Q1FY24 vs INR36.7k/sq ft in Q1FY20; in-line). Lower discretionary purchases vs pre-pandemic levels (general merchandise’s contribution trending towards pre-pandemic times though) kept underlying profitability/unit economics weak. Consequently, gross margin pressures continued (14.6%; -125bps YoY; vs HSIE: 15.0%) and EBITDAM declined -133bps YoY to 8.9%(HSIE: 9.6%). Cost and capital allocation discipline remain top-notch.

Outlook

We reduce our EPS estimates by ~5% for FY24 and 3% each for FY25/26 to account for lower sales density and GMs and retain SELL, with a DCF-based TP of INR3,200/sh, implying 55x Sep-25 P/E.

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Avenue Supermarts - 17 -07 - 2023 - hdfc