DMart - Long-Term Outlook Intact, Lacks Near Term Triggers: Prabhudas Lilladher

Prabhudas Lilladher Report

Avenue Supermarts Ltd.'s annual analyst call reinforced our positive stance given structural growth drivers in value retailing. DMart seems confident of sustaining growth in brick and mortar retail although real estate availability is a dampener to accelerate store openings.

DMart believes that decline in share of general merchandise and apparel (21.4% of sales in H2 FY23) should normalise as general merchandise (bigger part) is recovering now while apparel needs significant restructuring.

DMart Ready is on fine footing with highly competitive consumer offering, improving efficiencies and strong salience in bigger cities like Hyderabad, Pune and Bengaluru, in addition to Mumbai.

We factor in 13% growth in bills cuts and 6% decline in average bill value (6% higher than H2 FY24) in FY24. We are building in 30/40 bps decline in gross margin/Ebitda margin in FY24 and 20 bps expansion in FY25.

We estimate 15.4% profit before tax growth in FY24 and 22% CAGR over FY23-25.

We believe DMart has a huge runway of growth with 1500 plus store potential and scale up in DMart Ready. However, we expect growth pressures to sustain in Q2 (higher base, late Diwali (November 2023) and sustained pressure in apparel segment) with recovery from H2 FY24.

DMart lacks near term triggers, although the stock remains a long term 'Buy'.

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