Avenue Supermarts - Pushing For Store Addition Led Growth: Motilal Oswal

Motilal Oswal Report

Avenue Supermarts Ltd. clocked a 20% revenue compound annual growth rate over FY20-24, led by 18% footprint additions. Subdued same-store sales growth was mainly due to:

1. the addition of bigger stores over the last couple of years (20% rise in average store size), and

2. weak discretionary demand (share of discretionary items reduced to 22% in FY24 from 27% in FY20).

However, despite its weak SSSG, DMart has managed to protect its Ebitda margin at pre-Covid levels through its strong cost-control measures, unlike most other retailers. The recovery in revenue/sqft and the reducing gap between revenue/store and revenue/sqft further implied that the share of larger-format stores improved, which is positive for DMart.

Moreover, moderating inflation and the revival of discretionary demand could improve SSSG. We estimate a CAGR of 22%/31% of revenue/PAT over FY24- 26, aided by 11%/9% growth in footprint/revenue productivity.

We value the company at 52 times enterprise value/Ebitda (83 times PE) on FY26E to arrive at a target price of Rs 5,500. We reiterate our Buy rating on the stock.

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