Q3FY24 Review: Avenue Supermarts: A largely in-line quarter

15 Jan 2024 , 12:30 PM

DMart’s revenue grew by 17.2% YoY in Q3FY24 (disclosed in quarterly release), while the Ebitda performance was in line with analysts of IIFL Capital Services expectations. At 14.2%, gross margins were largely in line with our expectation of 14%. Lower store additions and sales per store impacted the growth. Per company release, the lower-than-expected festive sales in Non-FMCG impacted performance while General Merchandise and Apparel (GM&A) witnessed stable contribution. Maintain REDUCE, with TP of Rs3,700 

Ebitda in line with estimates: 

In Q3FY24, DMart’s revenue grew by 17.2% YoY (disclosed in quarterly release), impacted by lower store additions and sales per store. Sales per store grew 5.2% YoY. Ebitda grew 15% YoY and was in line with analysts of IIFL Capital Services expectation. Slightly higher gross margin was offset by higher employee expense and other expenditure relative to analysts of IIFL Capital Services forecasts. Ebitda margin of 8.5% contracted by 16bps YoY and was in line with analysts of IIFL Capital Services forecast of 8.5%. Gross margin of 14.2% was largely in sync with analysts of IIFL Capital Services forecast of 14%. The company opened five new stores in the quarter, taking the total store count to 341. 

Lower festive demand:

In its press release, the company mentioned that the festive season sales were lower than expected in the Non-FMCG segment; and within FMCG, agri-staples (ex-edible oil) are witnessing high inflation. In the General Merchandise and Apparel (GM&A) segment, contribution has stabilised and trends have been encouraging post Diwali. 

Maintain REDUCE: 

Analysts of IIFL Capital Services maintain their REDUCE rating on DMart. Growth in sales per store has slowed down from 6.5% in Q2FY24 to 5.2% in Q3FY24 and as inflation moderates, there could be further downside risks to this metric. Analysts of IIFL Capital Services forecast 21% EPS Cagr over FY24-26; which factors in 10% SSS growth and 50-55 annual store additions (vs. less than 40 likely in FY24). Trading at 76x FY25 EPS and a modest growth outlook, they find the risk-reward unfavourable. However, analysts of IIFL Capital Services do not expect much of a downside in the stock; it is more likely that the stock would time-correct.