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MOSL: AVENUE SUPERMARTS (Neutral)-Continuing to deliver on growth

(DMART IN, Mkt Cap USD45.9b, CMP INR5360, TP INR4900, 9% Downside, Neutral)

 

• Avenue Supermarts (DMART)'s consol EBITDA/PAT grew >2x YoY on strong revenue recovery of 47% YoY (30% above pre-COVID levels). This was coupled with healthy improvement of 40bp/240bp in gross/EBITDA margins, as opex cost optimization was much better than expected.
• We revise our FY22/FY23 EBITDA/PAT estimates by ~15%, largely extrapolating current cost efficiencies, even as sharp revenue recovery was built into our estimates. We factor in an FY20-24E revenue/PAT CAGR of strong 27%/31% as we see a limited effect on growth despite the COVID-19 impact over the last 4-6 quarters. This allows the stock to operate at >2x PEG. We revise our TP to INR4,900 on earnings revision and valuation rollover to FY24E. We maintain our Neutral rating.

 

EBITDA/PAT doubles YoY, aided by strong revenue recovery

• Consolidated revenue grew 46.8% YoY to INR77.9b. Standalone revenue at INR76.5b came in 30% higher v/s pre-COVID levels (2QFY20). This indicates strong recovery vis-à-vis 1QFY22, which was 13% down v/s pre-COVID levels.
• SSSG turns positive: We estimate same-store sales growth (SSSG) to be in the low single digits, with nearly 29% store additions (55%) seen in the last eight quarters. On an exit run-rate, Sep'21 saw 23.7% growth v/s Sept'20.
• Gross profit grew 51% YoY, 26% above pre-COVID (in-line), with 40bp YoY gross margin expansion to 14.9% (v/s est 14.8%). EBITDA/PAT came in 2x YoY higher at INR6.7b/INR4.2b (10% above est). EBITDA/PAT margins improved 240bp/160bp YoY.
• Revenue for its subsidiary (DMart Ready) was up 58.2% YoY to INR1.4b (~2% of consolidated revenue), while EBITDA loss stood at INR16m.