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Motilal Oswal Report
Avenue Supermarts Ltd.'s remarkable consistency in achieving industry-leading growth, margins and return on capital employed despite having a relatively asset-heavy model warrants rich valuations.
In the last five years, it has traded at 60 times enterprise value/Ebitda and 99 times PE. After a 25% correction since September 2022, DMart is now trading at 36 times EV/Ebitda and 58 times PE on FY25E, which represents a 30% discount to historical multiples.
This is mainly attributed to weak same-store sales growth in the recent past.
We believe that concerns about a growing online grocery market are unwarranted, as the share of both online and modern retail is miniscule in the total grocery market, and the market opportunity is huge. We believe SSSG improvements in FY24 should boost valuation multiples.
We have set a target price of Rs 4,200 apiece, implying an upside of 18%, and upgrade to stock to 'Buy' from 'Neutral'.
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