Geojit recommended recommended reduce rating on Avenue Supermarts with a target price of Rs 2100 in its research report dated July 13, 2020.
Geojit's research report on Avenue Supermarts
We downgrade DMart to Reduce rating with new Target of Rs2,100 (Rs2,400 earlier) factoring Covid-led impact on growth and expensive valuation. Q1FY20 revenue de-grew by ~34%YoY and PAT de-grew by 85%YoY. Gross/EBITDA/PAT margins declined by 240bps/750bps/450bps to 13.7%/2.8%/1.3%. Covid-19 led restrictions has significantly impacted the operations of the stores, footfalls, supply chain and new store construction. DMart added only 2 stores in Q1FY20, Vs 8 YoY. With more relaxation in restrictions, DMart’s sales started to recover by 80% or more of pre-Covid sales wherever allowed to operate. DMart’s 36% of the stores are in Maharashtra (highest Covid cases). However, due to ongoing uncertainties around Covid spread, discretionary consumption (non-FMCG) continues to be under pressure which will negatively impact gross margin. We expect new store additions will be significantly lower in FY21 on YoY basis but to ramp up in FY22. The company is using proceeds from recent QIP (Rs.4098cr) for debt reduction and expansion.
Outlook
Expect revenue/PAT to grow at 15%/17% CAGR, value DMart on a DCF basis to arrive at a target of Rs2,100 implying P/E of 74x on FY22EPS.
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