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Prabhudas Lilladher
Avenue Supermarts (Hold)
CMP: ₹1,425.7
Target: ₹1,338
Avenue Supermarts Ltd 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.
Avenue Supermarts (DMart) has sustained strong sales momentum led by Everyday low price model, strong value proposition and clusters based strategy. DMart has added eight stores in Q1 FY20, however large part of store openings are a spillover of FY19. Though Q1 FY20 gross margins were higher, we believe it will normalise in the coming quarters. It continues to maintain its growth strategy of gradual acceleration in store openings (added 21 stores in FY17, 24 in FY18 and 21 in FY19) and strong throughput in stores.
We believe benefits of higher store openings in Q1 boosted sales while 40 bps margin expansion was led by operating leverage. We estimate 37.4 per cent PAT CAGR over FY19-21. However, valuations at 49.8xFY21 EPS factor in the expected growth. Maintain Hold with a target price of ₹1338 although absolute returns might be back-ended due to estimated fresh supply of about ₹6,200 crore in QIP and OFS by March 2020.
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