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Avenue Supermarts - Company Update - ICICI Securities

Posted On: 2020-07-13 06:19:48

As anticipated, Q1FY21 was a challenging quarter for D-Mart with store closures (more than 50% in April) and restrictions on sale of GM & apparel impacting quarterly numbers. The management in its previous commentary had highlighted significant fall in revenue in April (down ~45% YoY) owing to stringent lockdown measures. Post relaxations in certain states, a gradual recovery was visible (implied de-growth of ~27% YoY in May-June). Revenue for the quarter de-grew 33% YoY (vs. estimate of 31% de-growth) to Rs. 3883.2 crore. The company added two stores in the quarter taking total store count to 216. The average size of the store opened in the quarter (~1 lakh sq ft) was more than 2x higher than the historical average store sizes (~45000-50000 sq ft). An unfavourable product mix led gross margins to decline 220 bps YoY to 14.2%. Furthermore, higher opex led EBITDA margins to decline sharply by 740 bps YoY to 2.9% in Q1FY21. Higher other income and decline in finance cost (owing to recent capital infusion) aided PAT, to a certain extent. Ensuing PAT de-grew 87.6% YoY to Rs. 40.1 crore. High store concentration in the worst hit Covid-19 states (Maharashtra, Gujarat comprise ~53% of total stores), may hamper store operations due to stringent measures by local authorities. Currently, stores are operating at 80% of pre-Covid levels with discretionary spends under pressure.

Valuation & Outlook

Of the total QIP proceeds (Rs. 4078 crore), the company has utilised Rs. 1213 crore mainly towards retirement in total debt (~Rs. 700 crore). The near term outlook remains challenging given the uncertain scenario and various limitations on store operations due to strict lockdowns enforced by local authorities (that would impact footfalls). The company continues to have a healthy liquidity position (~Rs. 3000 crore) with a strong balance sheet. Over the years, D-Mart has proven to be a resilient business model generating superior RoIC of 23% and healthy fixed asset turnover ratio of 4.1x. We build in revenue and earnings CAGR of 21% and 29%, respectively, in FY20-22E, assuming a strong recovery from H2FY21E onwards. We reiterate our HOLD rating with a target price of Rs. 2360 (45x FY22E EV/EBITDA).

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Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.2232.45 as compared to the previous close of Rs. 2322.15. The total number of shares traded during the day was 96380 in over 11161 trades.

The stock hit an intraday high of Rs. 2302 and intraday low of 2182. The net turnover during the day was Rs. 215859118.

Source: Equity Bulls

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