Shares of Avenue Supermarts Ltd. gained the most in nearly seven months after analysts said that its long-term outlook looks bright as improving consumer sentiment is likely to augur strong demand and enhance store footfalls and profitability.
Besides, a huge room for store expansion, deep discounting model, lower fixed costs and a strong balance sheet of the owner of supermarket chain DMart will help, the analysts said in their post-earnings research reports.
That even as they cut target prices for the company after it missed earnings estimates in the quarter ended March.
The management commentary pointed to a robust recovery in March but raised concerns over a shift in e-commerce, along with an adverse impact of inflation-led consumption. Another concern, according to analysts, is the company’s expensive valuation.
Of the 26 analysts tracking the company, 10 maintain a ‘buy’ rating, six suggest a ‘hold’ and 10 recommend a ‘sell’, according to Bloomberg data. The avearge of the 12-month price targets implies an upside of 21%.
Shares of Avenue Supermarts rose nearly 7.9% in early trade on Monday.
Here’s what brokerages have to say about Avenue Supermarts’ Q4 FY22 results.
Motilal Oswal
Maintains ‘neutral’, cuts target price to Rs 3,500 from Rs 4,500 earlier, still implying a potential upside of 8%.
Revenue growth was weak during the quarter as the discretionary non‐FMCG segment was impacted by Omicron.
For the first time, the management deliberated whether the current quarter’s soft performance was due to any secular shift in e-commerce.
DMart’s strong growth in footprint and cost optimisation measures led to healthy 21% Ebitda growth even amid the Omicron wave.
Despite the stock correcting more than 35% since its peak, the valuation remains expensive.
Systematix Institutional Equities
Upgrades to ‘buy’, cuts target price to Rs 4,150 from Rs 4,900 earlier, still implying an upside of 28%.
The brokerage expects sales and margins to expand in FY23/24E, driven by strong store footfalls, improved consumer confidence, higher sales of general merchandise and apparel and positive operating leverage.
Improving consumer sentiment should augur strong demand and enhance store footfalls and profitability.
Despite the near-term challenges and strong growth aspirations, DMart is unlikely to compromise on its working capital management and should maintain its inventory cycle at 36-37 days and net working capital cycle at 25-26 days.
A high inflationary environment should provide better to consumers given DMart’s discounting model.
Any further wave of Covid 19 remains a risk for the company, as it could hurt demand and margins as high margin discretionary items tend to face higher impact and recovery takes time.
Prabhudas Lilladher
Maintains ‘buy’, reduces target price to Rs 4,651 from Rs 5,345 earlier, with a potential upside of 43.7%.
Increased capex expected following accelerated store openings, higher inventory due to inflation and assuming higher WACC (rising interest rates).
DMart reported strong growth despite higher inflation, while growing the share of general merchandise and apparel by 50 basis points to 23.4% in FY22 vs FY21 even that’s still significantly lower than 27.3% share in FY20.
Strong growth will sustain as DMart is yet to fully sweat 72 stores opened in past 24 month. It remains positive for long term.
The brokerage has cut FY23/24 EPS estimates by 10.8% and 13.5%.
IDBI Capital
Retains ‘buy’; reduces target price to Rs 4,287, still implying upside of 32%.
Recommends DMart as high conviction idea from its coverage universe.
Same-store-sales growth at 17% is encouraging.
Gross margin remained resilient at 14.3% but shall improve with recovery in non-food portfolio.
The brokerage has adjusted our revenue growth estimates down wards (to 25% from 30% earlier) during first 10 years on a conservative basis and have adjusted our WACC estimates (to 12.3%) as per revised risk premium.
Dolat Capital
Upgrades to ‘buy’, lowers target price to Rs 3,685 from Rs 4,150 earlier, implying an upside of 14%.
DMart’s business fundamental remains robust. The company’s store addition remains healthy and imbibes confidence of future recovery.
Lower-than-expected store expansion, cannibalisation, and shift in organised market to online with DMart’s slow transition are key risks to an otherwise strong business trajectory in a large addressable market.
Reduces EPS estimate by 10/13% for FY23/24E to factor slower recovery.
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