MOSL: Morning India (22/June/17)-1. Avenue Supermarts (DMART)-Delivering value-2. Automobiles (Mini segment recovery helps Maruti)
​MOrning India (22/June/17): 1. Avenue Supermarts (DMART): Delivering value; 2. Automobiles (Mini segment recovery helps Maruti gain market share); 3. Aviation
Today’s top research idea
Avenue Supermarts (DMART): Delivering value; Expect PAT CAGR of 41% over FY17-21
DMART derives ~80% of its revenues from Maharashtra and Gujarat, which together account for 21% of its retail spends in India. DMART intends to invest 75% of its profits in the existing clusters and plans to add 25 stores annually to boost its growth potential.
Focus on cluster-based store expansion, rich product assortment, owned store model, centralized sourcing and efficiency (40% of revenues), lower employee cost (below 2% of sales v/s >4.5% for peers) and upfront payment to get cash discount have made DMART India's only retail company to showcase consistent and profitable growth over the last decade.
We expect DMART to deliver CAGR of 31% in revenue and 41% in PAT over FY17-21. We value the stock at 45x FY19E EPS, and initiate coverage with a Neutral rating and a target price of INR804.
Piping hot news
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