MOSL: AVENUE SUPERMARTS (Sell)-Steady quarter-store addition may accelerate in 4Q
Avenue Supermarts: Steady quarter; store addition may accelerate in 4Q
(DMART IN, Mkt Cap USD11.6b, CMP INR1182, TP INR920, 22% Downside, Sell)
- In-line revenue; better sales mix drives margins: DMART’s revenue increased 22.6% YoY to INR40.94b (est. of INR42.4b) in 3QFY18. EBITDA margin expanded 170bp YoY to 10.3% (est. of 9.3%), with the gross margin expanding 130bp YoY to 16.4%. The margin expansion can be majorly attributed to: 1) an improvement in centralized sourcing, which is now 45%-50% of revenues v/s 40%-45% a year ago and 2) a better product mix, coupled with higher growth in the apparel and accessories segment. EBITDA grew 46% YoY to INR4,217m (est. of INR3,944m). Interest expense came in higher than expected at INR110m, driving a beat in adj. PAT (+66% YoY to INR2,518m v/s est. of INR2,363m).
- Store addition to pick up in 4Q, but annual store addition may miss expectations: Historically, DMART has added majority of its stores in the second half of the year (note ~90% of its FY17 annual store addition was in 2HFY17). After adding 21 stores in FY16 and FY17 each, and the company has thus far added 10 stores in 9MFY18. We thus expect it to open another 12 stores in 4QFY18, taking FY18 new store addition to 22 (lower than our earlier projection of 25). We also lower our projections for store openings in FY19 and FY20 from 30 stores each to 25 and 27 stores, respectively.
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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