PL Stock Report - Avenue Supermarts (DMART IN) - Analyst Meet Update - LT outlook intact, lacks near term triggers - BUY

Avenue Supermarts (DMART IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs3,678 | TP: Rs4,574

Analyst Meet Update - LT outlook intact, lacks near term triggers

Quick Pointers:

♦ Aims to accelerate store openings, real estate remains a key issue

♦ General merchandise recovering; Apparel remains under pressure.

♦ D’Mart seems more confident on D’Mart ready with limited losses, no plans in quick commerce as of now

D’Mart annual analyst call reinforced our positive stance given structural growth drivers in value retailing. D’Mart seems confident of sustaining growth in brick and mortar retail although real estate availability is a dampener to accelerate store openings. D’Mart believes that decline in share of General Merchandise and Apparel (GMA - 21.4% of sales in 2H23) should normalize as GM (bigger part) is recovering now while Apparel needs significant restructuring. D’Mart Ready is on fine footing with highly competitive consumer offering, improving efficiencies and strong salience in bigger cities like Hyderabad, Pune and Bengaluru, in addition to Mumbai.

We factor in 13% growth in Bills cuts and 6% decline in average bill value (6% higher than 2H24) in FY24. We are building in 30/40bps decline in GM/EBIDTA margin in FY24 and 20bps expansion in FY25. We estimate 15.4% PBT growth in FY24 and 22% CAGR over FY23-25. We believe D’Mart has a huge runway of growth with 1500+ store potential and scale up in D’Mart Ready. However, we expect growth pressures to sustain in 2Q (higher base, late Diwali (Nov 2023) and sustained pressure in apparel segment) with recovery from 2H24. D’Mart lacks near term triggers, although the stock remains a long term Buy.

GMA - Apparel segment facing structural issues

♦ General merchandise is observing good demand with apparel seeing less traction, however given lesser contribution of apparel in overall GMA we believe that margin impact due to lower apparel demand is limited.

♦ Apparel segment saw demand drag amid External macro factors & entry of new players given underlying opportunities in

♦ D’Mart is a FMCG focused retailer thus apparel is not the most aspirational segment from a consumer point of its customers. D’Mart is looking at Internal restructuring and reframing its strategy to find better product mix to compete with standalone value segment retailers

♦ Base products in Apparel suffered last year due to high inflation, however off-late entry level segment is showing signs of recovery.

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