MOSL: AVENUE SUPERMARTS (Downgrade to Sell)-Growth captured in valuations
​Avenue Supermarts: Growth captured in valuations; downgrade to Sell
(DMART IN, Mkt Cap USD11.8b, CMP INR1218, TP INR873, 28% Downside, Downgrade to Sell)
Results below estimates; gross margin expansion reflected at EBITDA level: DMART's revenue increased 26.3% YoY to INR35.08b (est. of INR39.1b) in 2QFY18. EBITDA margin expanded 70bp YoY to 9.1% (est. of 9%) on account of gross margin expansion of 90bp YoY to 16.1%, partly offset by an increase of 40bp in employee expenses to 2% of net sales. EBITDA increased 37% YoY to INR3.18b (est. of INR3.5b). Accordingly, adj. PAT grew 65% YoY to INR1,910m (est. INR2,103m) in 2QFY18. We believe revenues are not comparable on a YoY basis due to net of GST revenues reported in this quarter. In FY17, bulk of the stores were opened in H2FY17, but H1FY18 marked opening of five new stores. We believe DMART is on track to open 25 stores this year, and will like to accelerate the run-rate in FY19. The company highlighted that GST transition has been smooth, and we believe GST will benefit organized players like DMART over the long run.
Avenue Supermarts Limited is an India-based company, which owns and operates DMart stores. DMart is a supermarket chain that offers customers a range of home and personal products under one roof. Each DMart store stocks home utility products, including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and others. The Company offers its products under various categories, such as bed and bath, dairy and frozen, fruits and vegetables, crockery, toys and games, kids apparel, ladies garments, apparel for men, home and personal care, daily essentials, grocery and staples, and DMart brands. DMart has a presence in over 110 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana and Chhattisgarh. The Company has multiple stores in cities, such as Mumbai, Ahmedabad, Baroda, Bengaluru, Hyderabad, Pune and Surat.
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