DMart Q4 Results Review - Inline, Healthy, Priced-In; Time-Correction Likely: Dolat Capital

Dolat Capital Report

Avenue Supermarts Ltd.’s Q4 FY24 revenue/gross profit was in-line. Ebitda was marginally below estimates led by higher opex and was a negative. Standalone revenue/ gross profit/Ebitda/adjusted profit after tax grew by 19.9/22.5/20.2/19.6% YoY, better than earlier quarters. FY24 revenue/ GP/Ebitda/APAT grew by 18.4/15.3/12/5% YoY.

The business model of DMart remains strong. We expect (H1 FY25) favorable base to support growth in the near term. Further, likely entry in a new state of Uttar Pradesh in FY26 may accelerate store additions and could be an add-on trigger. But managing the trinity of healthy store additions (10-13% CAGR), SSSG (6-9%) and margins (driven by mix) on higher base is a compound annual growth rate. DMart faces risk of increasing competition in the medium term. Also, increase in costs structure to accentuate pain.

We broadly maintain our FY25-26E estimates. Reiterate ‘Reduce’ rating with target price of Rs 4,200 viz. Rs 4,035 @ 65 times FY26E EPS and Rs 165 for Ready at five times FY26E enterprise value/sales (versus Rs 3,875 @ 60 times FY26E EPS earlier).

Increase in multiple is to factor near-term growth revival. Valuations (89/74 times FY25/26E EPS) remain rich leaving limited room to err.

Expect the stock to go through time and/or price correction in the near term. Wait for better entry point.

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