17th January, 2023

Q3FY23 RESULT UPDATE

Retail Equity Research

Avenue Supermarts Ltd Buy
Retail stores 12Months Investment Period Rating as per Large Cap
BSE CODE: 540376 NSE CODE: DMART CMP Rs. 3,688 TARGET Rs. 4,445 RETURN 21%
(Closing: 17-01-23)
Bloomberg CODE: DMART:IN SENSEX: 60,656

KEY CHANGES: TARGET RATING EARNINGS

Company Data
Healthy topline growth, margin pressure to reduce Market Cap (Rs.cr) 2,38,898

Avenue Supermarts Ltd (DMart) owns & operates India’s most profitable Enterprise Value (Rs.cr) 2,37,466
supermarket chain, DMart. It provides products like food, non-food (FMCG), Outstanding Shares (cr) 64.8
general merchandise & apparel through 306 stores (total 12.6mn sq. ft). Free Float (%) 22.0

• We maintain our Buy rating due to healthy topline growth but reduced Dividend Yield (%) 0.0
our target price to Rs. 4,445 due to ongoing margin pressure. 52 week high Rs. 4,606
• Revenue grew by 25%YoY, aided by store additions and a higher average 52 week low Rs. 3,185
basket value. However, profitability was impacted due to continued 6m average volume (cr) 0.04
inflationary stress on discretionary product demand (Gross margin Beta 1.13
declined by 60bpsYoY to 14.3%). Face value Rs. 10
• EBITDA margin declined by 100bps YoY (-170bps QoQ) to 8.6% due to Shareholding (%) Q1FY23 Q2FY23 Q3FY23
lower gross margin and higher other expenses. Product mix and margins
Promoters 75.0 75.0 75.0
are expected to improve going forward given moderating inflationary
FII’s 8.6 8.6 8.6
pressure.
MFs/Institutions 6.9 6.9 7.1
• Healthy store additions- 22 stores in 9MFY23- will support strong
revenue growth as footfall increases. Public 8.8 8.8 8.8

• We reduce our margin assumptions and expect Revenue/PAT to grow at Others 0.7 0.7 0.4

34%/42% CAGR over FY22-24E. DMart currently trades at 74x 1Yr Fwd Total 100.0 100.0 100.0
PE. We value DMart at 68x on FY25 EPS. Promoter pledge % 0.0 0.0 0.0
Price Performance 3 Month 6 Month 1 Year

Healthy topline growth aided by higher prices and store additions. Absolute Return -11.1% -6.1% -14.9%

DMart reported healthy revenue growth of 25% YoY, aided by store additions in recent Absolute Sensex 1.9% 8.5% -1.8%

quarters and higher prices. DMart opened 4 new stores in the quarter (22 stores in Relative Return* -13.1% -14.5% -13.1%
9MFY23), which will aid in the future growth when the footfall increases. DMart has a *over or under performance to benchmark index
strong focus on improving its E-Com business channe,l ‘DMart Ready’, and added 4
more cities in the quarter, making it present in a total of 22 cities across India. The 6000 DMART Sensex Rebased
company is in the process of opening a pharmacy shop-in-shop through its subsidiary 5000
(Reflect Healthcare and Retail Private Limited), in one store. Normalisation of the 4000
economy will increase footfall going forward, expect standalone revenue CAGR of 34%
3000
over FY22-24E, supported by strong store additions (85 stores in the last 24 months).
2000
Margins to normalise as inflation moderates… Jan-22 Jul-22 Jan-23
Gross margin declined to 14.3% from 14.9% YoY (14.5%QoQ) due to a deterioration Standalone (cr) FY23E FY24E FY25E
in the product mix. Due to inflationary pressure, FMCG and staple segment continued Sales 42,267 54,196 67,567
to outperform the non-FMCG and discretionary higher margin product segments. Growth (%) 39.3 28.2 24.7
EBITDA margin declined by 100bps YoY (maintained at 8.6% sequentially) due to EBITDA 3,836 4,947 6,278
lower gross margin and higher operational expenses. The discretionary mix (general
EBITDA Margin (%) 9.1 9.1 9.3
merchandise & apparels) is recovering but is still below the pre-covid levels due to
Adj. PAT 2,693 3,270 4,218
continued elevated inflation. The product mix is expected to improve in the coming
Growth (%) 66.6 21.5 29.0
quarters as the inflation started to moderate in the recent months, which will support
margin improvement. Adj. EPS 41.6 50.5 65.1
Growth (%) 66.6 21.5 29.0
Valuation & Outlook P/E 88.7 73.1 56.6
The normalization of the economy is supporting improvements in footfalls, and we P/B 13.9 11.6 9.6
expect DMart to benefit from its aggressive store additions in the recent years. DMart EV/EBITDA 61.9 47.8 37.3
has strong recovery potential given its healthy balance sheet with no debt and strong ROE (%) 17.6 17.9 19.2
operational efficiency. Strong store additions and higher sales values will aid strong D/E 0.0 0.0 0.0
revenue growth, while moderating inflation will improve discretionary demand and
margins. DMart is currently trading at 74x 1Yr Fwd PE. We reduced our target price to
Rs. 4,445 by valuing at 68x on FY25 EPS (earlier Rs.4,795) factoring in current margin
pressure but, maintain Buy rating due to healthy store additions and topline growth. Vincent Andrews
Research Analyst

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Quarterly Financials (Standalone)

Profit & Loss

Rs.cr Q3FY23 Q3FY22 YoY Growth Q2FY23 QoQ Growth 9MFY23 9MFY22 YoY growth
Sales 11,305 9,065 24.7% 10,385 8.9% 31,496 21,746 44.8%
EBITDA 974 868 12.2% 895 8.9% 2,877 1,760 63.5%
EBITDA margins % 8.6% 9.6% 260bps 8.6% 440bpS 9.1% 8.1% 220bps
Depreciation 142 108 31.2% 137 3.8% 402 298 34.8%
EBIT 833 760 9.5% 758 9.8% 2,476 1,462 69.4%
Interest 12 11 14.6% 12 2.2% 35 28 27.0%
Other Income 41 32 25.4% 44 -7.4% 121 102 19.4%
Exceptional Items 0 0 NA 0 NA 0 0 NA
PBT 861 782 10.1% 790 9.0% 2,561 1,535 66.8%
Tax 0 0 0.0% 0 0.0% 0 0 0.0%
Share of profit from associates 0 0 0.0% 0 0.0% 0 0 0.0%
Minority interest 220 196 12.2% 60 267.6% 510 385 32.3%
Reported PAT 641 586 9.4% 730 -12.2% 2,051 1,150 78.4%
Adjustments 0 0 NA -141 NA -141 0 NA
Adj PAT 641 586 9.4% 590 8.7% 1,910 1,150 66.1%
No. of Shares 65 62 3.8% 62 3.8% 65 65 0.0%
Adj EPS (Rs) 9.9 9.0 9.4% 9.1 8.7% 29.5 17.8 66.1%

Change in Estimates

Old estimates New estimates Change

Year / Rs cr FY23E FY24E FY23E FY24E FY23E FY24E
Revenue 42,641 55,612 42,267 54,196 -0.9% -2.5%
EBITDA 3,900 5,190 3,836 4,947 -1.6% -4.7%
Margins (%) 9.1% 9.3% 9.1% 9.1% 0bps (20bps)
Adj. PAT * 2,739 3,447 2,693 3,270 -1.7% -5.1%
EPS 42 53 42 50 -1.7% -5.1%

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PROFIT & LOSS BALANCE SHEET
Y.E March (Rs. cr) FY20A FY21A FY22A FY23E FY24E FY25E Y.E March (Rs. cr) FY20A FY21A FY22A FY23E FY24E FY25E
Revenue 24,675 23,787 30,353 42,267 54,196 67,567 Cash 92 1,432 138 1,280 2,259 4,652
% change 23.9 -3.6 27.6 39.3 28.2 24.7 Accounts Receivable 49 72 230 93 104 130
EBITDA 2,122 1,742 2,502 3,836 4,947 6,278 Inventories 1,909 2,167 2,587 3,543 4,484 5,521
% change 29.2 -17.9 43.6 53.3 29.0 26.9 Other Cur. Assets 242 289 298 415 532 663
Depreciation 340 371 421 537 648 734 Investments 304 494 494 494 494 494
EBIT 1,782 1,370 2,080 3,299 4,298 5,544 Gross Fixed Assets 6,620 7,904 10,436 13,399 15,746 17,953
Interest 63 34 40 42 48 54 Net Fixed Assets 5,708 6,620 8,732 11,157 12,856 14,329
Other Income 63 209 141 164 163 203 CWIP 362 1,006 1,073 350 350 350
PBT 1,783 1,545 2,182 3,421 4,413 5,692 Intangible Assets 11 9 9 9 9 9
% change 23.2 -13.4 41.2 56.8 29.0 29.0 Def. Tax (Net) -48 -52 -52 -52 -52 -52
Tax 433 379 566 729 1,143 1,474 Other Assets 3,407 1,556 1,757 1,158 1,188 926
Tax Rate 24.3% 24.6% 25.9% 21.3% 25.9% 25.9% Total Assets 12,036 13,594 15,266 18,446 22,224 27,022
Reported PAT 1,350 1,165 1,616 2,693 3,270 4,218 Current Liabilities 704 1,050 1,071 1,510 1,970 2,499
Adj* 0 0 0 0 0 0 Provisions 14 22 17 23 30 37
Adj PAT 1,350 1,165 1,616 2,693 3,270 4,218 Debt Funds 4 0 0 0 0 0
% change 44.2 -13.7 38.7 66.6 21.5 29.0 Other Liabilities 179 217 257 298 341 384
No. of shares (cr) 64.8 64.8 64.8 64.8 64.8 64.8 Equity Capital 648 648 648 648 648 648
Adj EPS (Rs.) 20.8 18.0 24.9 41.6 50.5 65.1 Reserves & Surplus 10,488 11,658 13,274 15,966 19,236 23,454
% change 38.9 -13.7 38.7 66.6 21.5 29.0 Shareholder’s Fund 11,136 12,305 13,921 16,614 19,884 24,102
DPS (Rs.) 0 0 0 0 0 0 Total Liabilities 12,036 13,594 15,266 18,446 22,224 27,022
CEPS (Rs.) 26.1 23.7 31.4 49.9 60.5 76.4 BVPS (Rs.) 178 197 223 266 319 386

CASH FLOW RATIOS

Y.E March (Rs. cr) FY20A FY21A FY22A FY23E FY24E FY25E Y.E March FY20A FY21A FY22A FY23E FY24E FY25E
Net inc. + Depn. 1,690 1,537 2,037 3,230 3,918 4,952 Profitab. & Return
Non-cash adj. -29 -31 -101 -123 -115 -148 EBITDA margin (%) 8.6 7.3 8.2 9.1 9.1 9.3
Changes in W.C -373 -120 -571 -488 -591 -352 EBIT margin (%) 7.2 5.8 6.9 7.8 7.9 8.2
C.F. Operation 1,287 1,385 1,365 2,619 3,213 4,452 Net profit mgn.(%) 5.5 4.9 5.3 6.4 6.0 6.2
Capital exp. -1678 -1968 -2600 -2239 -2348 -2207 ROE (%) 16.1 9.9 12.3 17.6 17.9 19.2
Change in inv. -3,036 672 -20 804 163 203 ROCE (%) 16.5 10.2 12.6 17.9 18.2 19.4
Other invest.CF 12 126 0 0 0 0 W.C & Liquidity
C.F – Investment -4,700 -1,155 -2,619 -1,435 -2,185 -2,004 Receivables (days) 0.9 0.9 1.8 1.4 0.7 0.6
Issue of equity 4187 0 0 0 0 0 Inventory (days) 30.3 36.5 33.3 31.0 31.8 31.9
Issue/repay debt -657 -104 0 0 0 0 Payables (days) 7.9 9.1 8.7 8.2 8.5 8.6
Dividends paid 0 0 0 0 0 0 Current ratio (x) 3.2 3.7 3.0 3.5 3.7 4.3
Other finance.CF -147 -36 -40 -42 -48 -54 Quick ratio (x) 0.1 1.4 0.2 0.1 0.1 0.1
C.F – Finance 3384 -140 -40 -42 -48 -54 Turnover & Leverage
Chg. in cash -29 90 -1,294 1,142 980 2,393 Gross asset T.O (x) 4.3 3.3 3.3 3.5 3.7 4.0
Closing cash 92 1432 138 1280 2259 4652 Total asset T.O (x) 2.6 1.9 2.1 2.5 2.7 2.7
Int. coverage ratio (x) 28.4 39.7 52.5 79.2 89.7 101.9
Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0 0.0
Valuation
EV/Sales (x) 9.3 10.0 7.8 5.6 4.4 3.5
EV/EBITDA (x) 108.2 136.0 95.2 61.8 47.7 37.2
P/E (x) 176.5 204.5 147.5 88.5 72.9 56.5
P/BV (x) 20.6 18.7 16.5 13.8 11.6 9.5

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Recommendation Summary (Last 3 Years) Dates Rating Target
6000 15-July-21 Hold 3,480
5000 20-Oct-21 Sell 4,200
4000
11-Jan-22 Sell 4,150
3000
30-Mar-22 Buy 4,520
2000
21-July-22 Buy 4,380
1000
20-Oct-22 Buy 4,795
0
Jan-20 Oct-20 Jul-21 Apr-22 Jan-23 17-Jan-23 Buy 4,445
Source: Bloomberg, Geojit Research

Investment Rating Criteria

Ratings Large caps Midcaps Small Caps
Buy Upside is above 10% Upside is above 15% Upside is above 20%
Accumulate - Upside is between 10%-15% Upside is between 10%-20%
Hold Upside is between 0% - 10% Upside is between 0%-10% Upside is between 0%-10%
Reduce/sell Downside is more than 0% Downside is more than 0% Downside is more than 0%
Not rated/Neutral

Definition:
Buy: Acquire at Current Market Price (CMP), with the target mentioned in the research note.
Accumulate: Partial buying or to accumulate as CMP dips in the future.
Hold: Hold the stock with the expected target mentioned in the note.
Reduce: Reduce your exposure to the stock due to limited upside.
Sell: Exit from the stock.
Not rated/Neutral: The analyst has no investment opinion on the stock.

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return
basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of
valuations/ return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION
I, Vincent K A, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of the
subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

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Digitally signed by VINCENT K A

VINCENT K A Date: 2023.01.17 17:24:18
+05'30'

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