Hold Avenue Supermarts; target of Rs 1338: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Avenue Supermarts
D’Mart has sustained strong sales momentum led by Everyday low price model, strong value proposition and clusters based strategy. D’Mart has added 8 stores in 1Q20, however large part of store openings are a spillover of FY19. Though 1Q20 gross margins were higher, we believe it will normalize in the coming quarters. It continues to maintain its growth strategy of gradual acceleration in store openings (added 21 stores in FY17, 24 in FY18 and 21 in FY19) and strong throughput in stores. We believe benefits of higher store openings in 1Q boosted sales while 40bps margin expansion was led by operating leverage. We estimate 37.4% PAT CAGR over FY19-21.
However, valuations at 49.8xFY21 EPS factor in the expected growth. Maintain Hold with a target price of Rs1338 although absolute returns might be back ended due to estimated fresh supply of ~Rs62bn in QIP and OFS by March2020.
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