DMart - Discretionary Demand Set To Improve: Motilal Oswal

Motilal Oswal Report

At its analyst meet, Avenue Supermarts Ltd. reiterated its strategy of ‘Everyday low cost, Everyday low price’ across food, fmcg, general mechandise, apparels and DMart Ready. Following are the key highlights of the event:

• The company targets to add 40 stores in FY24. The timing is a challenge due to longer cycles of turnaround and issues like the availability of larger stores and inflation-led high property prices.

• In the general merchandise and apparels category, general merchandise is mainly impacted by macro factors, but the apparels category is facing both macro factors and increased competitiveness. However, we believe new categories (like pharma, etc.) should offset the impact.

• DMart is optimistic about the e-commerce business and has expressed reasonable clarity that it may not report significant losses. It will focus on the existing 22 cities and big-basket buying through both store pick-up and home delivery channels.

• The gross margin impact from GM&A is cushioned by the strategy of direct procurement from grocery brands.

• Usually 30.000-35,000 square feet stores mature in about three years, while larger stores (~45,000 sqft) mature in four to five years, giving the company potential to grow more.

• We factor in revenue/profit after tax compound annual growth rates of 26%/27% over FY23-25E on the back of 16%/9% area/revenue productivity. Maintain 'Buy'.

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