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Dolat Capital Report
Avenue Supermarts Ltd.'s Q2 FY25 gross profit/Ebitda/adjusted profit after tax came below estimates due to higher opex. Standalone Revenue/gross profit/Ebitda/APAT grew by 14.2/ 15.9/10.3/7.9% YoY.
While business model remains strong, managing the trinity of healthy store additions (12-13% CAGR), same-store sales growth (6-9%) and margins (driven by mix) on a higher base is becoming a challenge.
The company is also facing intense competition (from Qcom), which, coupled with increasing costs can accentuate earnings growth pain. However, an accelerated store expansion can partly soften the blow.
We reduce our FY25-27E EPS estimates by 8/8/9%.
Reiterate ‘Reduce' rating with revised target price of Rs 4,120 from Rs 3,940 at 65 times H1 FY27E standalone EPS and Rs 180 for Ready at five times FY27E enterprise value/sales (earlier target price of Rs 4,530 at H1 FY27). Valuations at 98/82/70 times FY25-27E EPS leave limited room to err.
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