Mr. Himanshu Nayyar, Lead Analyst - Institutional Equities, YES SECURITIES on Q3FY21 results of Avenue Supermarts
Avenue Supermarts 3QFY21 results - better than expected performance and strong 2-year earnings visibility, but valuations quite rich now
Result summary - Overall better than expected performance led by a quicker normalization of overall business with a strong sequential recovery especially during the festive months of October and November. Revenue/EBITDA/PAT growth of 10%/17%/19%.
- Topline - Revenue growth of 10% yoy to Rs 74.3bn led by festive surge with slower growth in out of home usage categories like apparel, laundry, footwear and travel. Lesser trips and higher basket values continue to be the norm. SSSG decline of 4% in December for 162 stores more than 2 years old due to restricted store operations.
- Margins - Gross margins also surprised positively coming in at 15.1% (up 10bps) despite the inferior mix in favor of FMCG and staples while EBITDA margins improved 50bps to 9.3% led by strong cost controls.
- Store expansion/closure - Company opened 1 new store during the quarter taking the total store count to 221.
- DMart Ready - Revenue from subs (D Mart Ready) continued its strong trajectory growing 92% to Rs 109cr in 3Q. Company increased footprint to Ahmedabad, Bangalore and Hyderabad by leasing some space in its store to the e-com entity.
- Near-term outlook - December month has seen some slowdown (SSSG down 4%) after a strong October and November, near term sales mix and margins can be impacted by higher RM prices and supply/availability issues in few non-FMCG categories.
- Our view - After the recent outperformance, the stock is currently trading at 68x FY23E P/E and 45x EV/EBITDA. While we turned positive on the stock around Rs 2000 levels citing favorable multiples, increasing traction in online business and strong balance sheet advantages, those advantages seem to be broadly captured in current valuations around Rs 3000 levels. We therefore, expect a period of consolidation in the stock with investors waiting to see the impact of aggressive online competition in the grocery space. We expect the management to aggressively expand both its offline and online footprint over the next two years utilizing its strong balance sheet, which should provide strong earnings visibility and thereby sustain these premium multiples.
Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.2967.55 as compared to the previous close of Rs. 2918. The total number of shares traded during the day was 26242 in over 2888 trades.
The stock hit an intraday high of Rs. 2995.95 and intraday low of 2935.9. The net turnover during the day was Rs. 77651246.