Prabhudas Lilladher has given Buy recommendation for Avenue Supermarts with a target price of Rs. 4651 in its research report issued on May 14, 2022
Prabhudas Lilladher’s research report on Avenue Supermarts
We cut FY23/24 EPS estimates by 10.8% and 13.5% and DCF based target price to Rs4651 (5345 earlier) even as we upgrade to the stock to Buy post sharp correction. We believe increased capex following accelerated store openings, higher inventory due to inflation and assuming higher WACC (rising interest rates). D’Mart reported strong growth despite higher inflation while growing the share of general merchandise and apparel by 50bps in FY22 vs FY21 (still lower than 27.3% share in FY20). 4Q margin expansion of 15bps shows the robust business model despite deterioration in sales mix and operating cost of 21 new stores opened in 4Q (other expenses up 18.9% YoY and 3.7% QoQ versus just 9.2% increase YoY in 9MFY22). Though 3 rd covid wave impacted the business temporarily, the recovery was swift in the FMCG business while it lagged in the discretionary non-FMCG segment.
Outlook
We expect strong growth to sustain as D’Mart is yet to fully sweat 72 stores opened in past 24 months. We estimate 42% PAT CAGR over FY22- 24 and remain positive for long term. Bill cuts/store/day remain 33% lower than FY20, and we assume 25% and 20% lower number by FY24, complete recovery can provide upside to our estimates. Upgrade to Buy.