Avenue Supermart Limited

KEY INFORMATION FOR AVENUE SUPERMART LIMITED

Date

11-Dec-20

Market Price (INR)

2622

52Week H/L

2755/1700

Market Cap (INR Mn)

16,98,465

Shares Outstanding (Mn)

647.8

Industry

Retail

Recommendation

Sell

Target Price

2,337

Upside/Downside

-10.87%

 

Key Financial

FY20

FY21E

FY22E

FY23E

Sales

2,48,702

2,60,737

3,35,726

4,17,235

Growth (%)

24.32%

4.84%

28.76%

24.28%

EBITDA

21,283

20,116

28,329

37,410

Margin (%)

8.56%

7.71%

8.44%

8.97%

PAT

13,011

12,693

18,430

24,813

EPS

20.55

19.92

28.93

38.95

Growth (%)

44.17%

-3.08%

45.21%

34.63%

ROE (%)

11.74%

10.32%

13.15%

15.29%

ROCE (%)

15.35%

9.88%

12.74%

14.88%

EV/EBITDA(x)

78.7x

83.3x

59.1x

44.8x

P/E(x)

125.7x

129.7x

89.3x

66.3x

 

Share Holding Pattern (%)

Promoter

75.0%

FIIs

10.3%

DIIs

6.1%

Others

8.6%

Not yet out of COVID impacts but recovering fast

D Mart’s sales declined by 12.3% YoY in Q2-F21 and 34% YoY in Q1-F21 mainly due to pandemic. Post lockdown, improvement in footfalls have witnessed significant improvement in Non-FMCG sales from last quarter, which is aiding faster recovery in margins.

Still King in Retail Segment?

D Mart is among few players to have mastered the Retail game via its strong execution strategy, store locations, and EDLC/EDLP focus. D Mart is King in offline retail segment through their execution strategy backed by strong management. E-commerce division, D Mart Ready, has to replicate offline Retail’s success into online Retail.

Available at a richly valued price

We estimate Revenue CAGR of 14%, EBITDA CAGR of 18%, and EPS CAGR of 22% over the FY19-23E. The stock currently trades at 66X of FY23E EPS, which we find to be a very rich valuation.

COMPANY PROFILE

D-Mart was conceived by value investor Mr. Radhakishan Damani in 2000, operating a single store in Maharashtra. With a mission to be the lowest priced retailer in their operation area, D-Mart has grown steadily over the years and operates 220 stores. It follows a cluster-based expansion approach focusing on deepening penetration in the areas already present before expanding to newer regions.

MANAGEMENT PROFILE

 Name

 Designation

Ignatius Navil Noronha

 CEO, Director & MD

Narayana Bhaskaran

 Chief Operating Officer

 Nildari Deb

 Chief Financial Officer

Udaya Bhaskar Yarlagadda

 Chief Operating Officer

 Ashu Gupta

 Secretary & Compliance Officer

Dheeraj Kampani

 Vice President

Hitesh Shah

 Vice President

AVENUE SUPERMART BOARD MEMBERS

Name

Designation

Ramesh Damani

Chairman

Chandrashekhar Bhave

Independent Director

Kalpana Unadkat

Independent Director

Manjri Chandak

Non-Executive Director

Elvin Machado

Whole Time Director

Ramakant Baheti

Whole Time Director & Group CFO

Not yet out of the COVID impacts but recovering fast

D Mart’s sales declined by 12.3% on YoY in Q2FY21, mainly due to the slow recovery in footfalls, partial local lockdowns, and subdued sales in general merchandise and apparel category. SSSG came in at -12.5% for stores that have been operating for more than two years. However, with relaxation in restrictions norms, the company has seen MoM improvement as the revenue dropped by 34% YoY in Q1FY21.

Company continued expanding its presence, added 8 new stores, and shut the 2 two stores in the first of FY21. We expect that store addition is likely to accelerate in the second half of FY21 on the back of a recent QIP of ~41 bn.

Faster Recovery in Margins

Gross Profit/EBITDA declined by 102/90 bps YoY and stood at 14.05% /6.2%. The impact was mainly due to lower sales and lower non-FMCG Mix due to pandemic led disruption. With more relaxation in restrictions and the resultant improvement in footfall; non-FMCG sales have witnessed significant improvement since last quarter, which is aiding faster recovery in margins.

Improvement seen in PAT Margins

PAT de-grew by ~37% YoY in Q2FY21 v/s de-growth of 85% YoY in Q1FY21 due to lower sales and margins. We expect that improvement in margin and lower- tax rates will support the growth. The company has repaid all their long term debt from recent QIP.

Still King in the Retail Segment?

The company is the dominant player in the offline retail segment via its execution strategy. Food and Grocery remain the value migration play in Retail, which provides a vast opportunity as a low single-digit share from organized retail players. Despite this enormous opportunity, most of the players have failed on execution like Future Retail. They are among few players who have mastered the game through their presence in key locations.

E-Commerce is a small part of their overall operations but aggression is visible with the launch of fulfillment centers and the extension of existing e-commerce. D Mart is getting ready to battle with E-commerce players like Big Basket, Jio Mart, Groffers, and Amazon Pantry. We believe the company would maintain their position in offline retailing. But heavy competition from players like Reliance and Spencer’s and willingness to take entry into Indian Retail industry like Wal-Mart may hurt the business witnessed in last 10 quarters.

Reliance Retail has also cracked the formula to serve both the retail segment offline and online. D Mart Ready has to ramp up their business if it has to replicate their offline success in E-commerce. We believe that the ecommerce platform and offline presence would drive the growth but not as compared to last 5 year’s growth which could be a crucial trigger for the PE re-rating.

SalesGrowth

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

Spencer’sRetail

     

3.6%

14.7%

8.1%

5.9%

5.9%

-27.0%

-13.3%

Reliance Retail

123.75%

121.47%

89.26%

51.61%

47.53%

27.33%

27.41%

4.22%

-17.23%

-0.25%

Dmart

26.7%

38.9%

33.1%

32.1%

26.8%

22.1%

23.9%

23.0%

-33.7%

-12.3%

We build a sales projection with a CAGR of ~16% for F19-F23E and expect improvement in EBITDA margin to 9% in F23E from 8.2% in F19 on account of ramp up of D Mart Ready, Higher sales in offline retailing, and dominance presence in key location.

Improvement in Sales to lead Improved Return Ratio

We expect EBITDA to grow at an 18% CAGR due to higher revenue growth and a faster recovery in the second half. The EBITDA margin expands 80 bps to 9% in FY23E on the back of improvements in operating margins over FY20-23E.

We expect that gross margin would remain in the range of 14.8-15.1%. EBIT margin to increase by ~50 bps to 7.6% in F23E. Cash conversion cycle remains steady, which indicates a strong execution by the management.

The Return on equity (RoE) declined to 15.6% in F20 from an average of 18% in F17-F19. We expect RoE to improve to 16.4% in F23E on account of faster recovery in margin and progress in MoM sales.

Outlook and Valuation

We expect that the faster recovery, improvement in sales, and strong execution drive business growth and project the sales with a CAGR of 16% for F19-F23E, which is lower than the growth CAGR of 24% F16-F20. We project that earnings remain healthy with a growth of 22% for F19-F23E which is lower than the growth of 29% on account of lower sales growth compared to previous years mainly due to heavy competition in offline and online Retail. Currently, the stock is trading at PE 66.3x EPS of F23E of INR 38.95, which we believe a rich valuation sees a healthy competitive landscape in the retail segment. We valued at PE of 60x F23E EPS arrived on the recommendation of SELL, with a price target of 2337, a downside of 10%.

Key Financials

Income Statement

2019

2020

2021E

2022E

2023E

Net Sales

     2,00,045

     2,48,702

     2,60,737

     3,35,726

     4,17,235

Purchase of stock in trade

     1,74,455

     2,14,417

     2,27,754

     2,92,921

     3,63,829

Change in inventory of stock in trade

         (4,447)

         (3,388)

         (5,736)

         (7,386)

         (9,179)

Cost of materials

     1,70,008

     2,11,029

     2,22,018

     2,85,535

     3,54,650

Gross profit

        30,037

        37,673

        38,719

        50,191

        62,585

Employee costs

          3,554

          4,561

          5,197

          5,860

          6,625

Other expenses

        10,150

        11,829

        13,407

        16,002

        18,551

EBITDA

        16,333

        21,283

        20,116

        28,329

        37,410

Depreciation & amortisation

          2,125

          3,744

          4,404

          5,044

          5,696

EBIT

        14,208

        17,539

        15,711

        23,285

        31,714

Other income

             484

             600

          2,050

          2,214

          2,391

Finance charges

             472

             691

             726

             762

             800

Net Profit before tax

        14,219

        17,448

        17,036

        24,737

        33,305

Less: Current tax, FBT

          5,195

          4,438

          4,344

          6,308

          8,493

Tax Rate

                 0

                 0

                 0

                 0

                 0

Minority and associates

                 1

                 1

                 1

                 1

                 1

PAT

          9,025

        13,011

        12,693

        18,430

        24,813

EPS (period end)

            14.5

            20.7

            20.2

            29.3

            39.3

 

Balance Sheet

2019

2020

2021E

2022E

2023E

Freehold Land

     16,212

        22,629

        25,602

        30,043

        34,610

Leasehold Land

       4,070

                -  

                -  

                -  

                -  

Building

     21,160

        27,123

        29,770

        33,568

        37,401

Others

       7,134

          9,551

        10,784

        12,595

        14,423

Gross tangible assets

     48,576

        59,303

        66,156

        76,207

        86,434

Less: Accumulated depreciation

     (5,835)

         (8,229)

       (12,419)

       (17,261)

       (22,770)

Net Tangible assets

     42,740

        51,074

        53,737

        58,946

        63,664

Right Use of Assets

            -  

          7,173

          7,173

          7,173

          7,173

Gross intangible assets

       1,304

          1,397

          1,445

          1,515

          1,585

Less: Accumulated amortization

        (222)

            (329)

            (544)

            (745)

            (933)

Net Intangible assets

       1,082

          1,068

             901

             769

             652

Capital WIP (Tangible)

       3,768

          3,644

          3,644

          3,644

          3,644

Non-Current Investments

          181

             165

             165

             165

             165

Long term loans and advances

          324

        31,309

        31,309

        31,309

        31,309

Other non-current assets

       1,136

          2,854

          2,854

          2,854

          2,854

Cash

       2,191

          1,079

        14,668

        25,521

        41,523

Trade Receivables

          644

             196

             440

             566

             704

Inventory

     16,087

        19,474

        18,700

        24,042

        29,852

ST loans and advances

          756

          1,237

          1,361

          1,497

          1,647

Other current assets

       1,149

          1,491

          1,640

          1,804

          1,985

Total current assets

     20,826

        23,477

        36,809

        53,431

        75,710

Total assets

     70,057

     1,20,765

     1,36,593

     1,58,292

     1,85,172

Short term borrowings

       3,042

               37

               37

               37

               37

ST Lease Liabilities

            -  

             744

             744

             744

             744

Trade Payables

       4,633

          4,335

          4,723

          6,082

          7,564

Other current liabilities

       4,467

          1,991

          2,190

          2,409

          2,650

Short term provisions

          128

             152

             152

             152

             152

Current liabilities

     12,269

          7,258

          7,846

          9,424

        11,147

Long term borrowings

       1,257

                -  

          3,000

          6,000

          9,000

LT Lease Liabilities

            -  

          2,211

          2,211

          2,211

          2,211

Deferred tax liabilities

          633

             474

             474

             474

             474

Other long term liabilities

            18

               20

               20

               20

               20

Total liabilities

     14,177

          9,963

        13,550

        18,128

        22,851

Share Capital

       6,241

          6,478

          6,478

          6,478

          6,478

Reserves and surplus

     49,634

     1,04,320

     1,16,561

     1,33,682

     1,55,839

Minority Interest

              6

                 5

                 5

                 5

                 5

Total capital and liabilities

     70,057

     1,20,765

     1,36,593

     1,58,292

     1,85,172

 

Cash Flow statement

2019

2020

2021E

2022E

2023E

Net Profit before tax

        14,219

        17,448

        17,036

        24,737

        33,305

Depreciation & Amortisation

          2,125

          3,744

          4,404

          5,044

          5,696

Finance Costs

             472

             691

             726

             762

             800

Others

            (224)

            (395)

                -  

                -  

                -  

CFO before WC changes

        16,593

        21,488

        22,166

        30,543

        39,801

Increase/(Decrease) in payables

          1,460

            (298)

             389

          1,359

          1,482

Increase/(Decrease) in other liabilities

            (198)

             191

             199

             219

             241

(Increase)/ Decrease in debtors

            (309)

             448

            (244)

            (127)

            (138)

(Increase)/ Decrease in inventory

         (4,452)

         (3,388)

             774

         (5,342)

         (5,810)

(Increase)/ Decrease in other assets

                (7)

            (716)

            (273)

            (300)

            (330)

WC changes

         (3,507)

         (3,762)

             844

         (4,191)

         (4,555)

Taxes Paid

         (5,018)

         (4,924)

         (4,344)

         (6,308)

         (8,493)

Cash Flow from operations

          8,068

        12,801

        18,666

        20,044

        26,754

Investments sold/(purchased)

          3,991

          2,216

                -  

                -  

                -  

Divestments

                -  

                -  

                -  

                -  

                -  

Capex

       (14,168)

       (17,122)

         (6,900)

       (10,121)

       (10,297)

Others

         (3,393)

       (31,660)

                -  

                -  

                -  

Cash flow from investment

       (13,569)

       (46,566)

         (6,900)

       (10,121)

       (10,297)

Equity issued

                -  

        41,869

                -  

                -  

                -  

Dividend Paid

                -  

                -  

            (450)

         (1,308)

         (2,655)

Debt raised/(paid)

          2,600

         (7,613)

          3,000

          3,000

          3,000

Interest income

                -  

                -  

                -  

                -  

                -  

Finance Costs

            (510)

            (682)

            (726)

            (762)

            (800)

Cash flow from finance

          2,090

        33,574

          1,824

             930

            (455)

Net increase/(decrease) in cash

         (3,411)

            (190)

        13,589

        10,853

        16,001

Cash at the beginning of the year

          5,602

          2,191

          1,079

        14,668

        25,521

Cash at the end of the year

          2,191

          2,001

        14,668

        25,521

        41,523

 

Key Ratio

2019

2020

2021E

2022E

2023E

EPS

         14.5

            20.7

            20.2

            29.3

            39.3

Gross Profit Margin

15.0%

15.1%

14.9%

15.0%

15.0%

EBITDA Margin

8.2%

8.6%

7.7%

8.4%

9.0%

EBIT Margin

7.1%

7.1%

6.0%

6.9%

7.6%

Net Profit Margin

4.5%

5.2%

4.9%

5.5%

5.9%

ROE

17.6%

15.6%

10.9%

14.0%

16.4%

ROCE

16.5%

15.3%

9.9%

12.7%

14.9%

Inventory days

30

31

31

31

31

Receivable days

1

1

1

1

1

Payable days

8

8

8

8

8

Stock Performance

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DISCLAIMER

This report is only for the information of our customers. Recommendations, opinions, or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.

 

 

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