February 21, 2024

Geojit’s research report on Avenue Supermarts

Avenue Supermarts Ltd. (DMart) owns & operates India’s most profitable supermarket chain, DMart. It provides products like food, non-food (FMCG), general merchandise & apparel through 341 stores (total 14.2mn sq. ft). We maintain our BUY rating with a revised target price of Rs. 4,300 owing to healthy revenue growth and store additions. Revenue grew by 17%YoY, aided by store additions, however, profitability was lower (gross margin declined by 10bpsYoY to 14.2%) due to inflationary stress on discretionary product demand. Operating profit grew by 15%YoY as EBITDA margin declined by 10bps YoY to 8.5% (8.1% QoQ). As per management, contribution from high margin segments has stabilized and the trend is encouraging. This along with moderating inflation and healthy store additions will improve earnings growth. We reduce our margin assumptions and expect Revenue/PAT to grow at a 22%/20% CAGR over FY23-25E. DMart currently trades at 75x 1Yr Fwd PE. We value DMart on a DCF basis, which implies 63x on FY26 EPS.

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Outlook

DMart has strong growth potential given its healthy balance sheet with no debt and strong operational efficiency. Healthy store additions will aid future revenue growth, while moderating inflation will improve discretionary demand and margins. DMart is currently trading at 75x 1Yr Fwd PE. We arrive at a target price of Rs.4,300 by valuing on a DCF basis, which implies 63x on FY26 EPS, maintaining our BUY rating.

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Avenue Supermarts – 19012024 – geo