Avenue Supermart: a compounding machine?

Standalone Revenue from operations for the quarter ended (QE) September 30, 2022 stood at INR 10,384.66 crores.
35.7% YoY growth
The total number of stores as of September 30, 2022 stood at 302.

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Let’s see if they can maintain NP margin of 6.4 likewise Q1

September quarter NPM is usually less than June quarter (from 4 to 5%).

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In last 5 year Dmart has invested apprx 5400 cr in land and building against 5 years of NP of 5600. based on this facts and following assumptions , have tried to forecast future expansion and turnover, NP etc.
assumptions

  1. 8% INCREASE REV PER SQ FT
    2.RATE PER SQ FT TO ACQUIRE NEW land buidling INCREASED BY 10% pa
    3.NPM 6.2% (avg NP of last two qtrs)
    4.full NP is invested in land, building adding sq.ft of sale area as more or less done in last 5 years
    5.DMART ready REV/Loss NOT ACCOUNTED
    6.REV INCREASE FROM FOOD CANTEEN NOT ACCOUNTED
    D mart.xlsx (13.4 KB)

views n comments highly appriciated

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Your PE assumption till FY29 seems too aggressive , I would start with 75 PE on FY24 and reduce 10% consecutively and settle for 35PE.
Pre-covid PE has been lesser than 80 couple of times.

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Hyderabad Dmart ready online shopping experience:
Dmart Ready is now delivering online orders on the same day. If we order in the morning, the items are being delivered between 12 pm to 5 pm. If we order in the evening, delivery will be on the next day morning. Earlier they used to take 2-3 days for delivery, so I only used to order once a month. Most of the items are cheaper at Dmart and the selection is much better compared to Flipkart or Amazon. Flipkart grocery delivery is the next day even if we order in the morning.

Packaging-wise, they will bring the items in a box directly and leave them at the door. No extra packaging for the items or carry bags. I like this approach personally as it’s good for the environment. It’s also cost-effective for the company. With good EV auto options becoming available hopefully, they will switch to EV autos for delivery.

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A couple of cents For folks who are trying to model the earnings:

  1. Dmart has a very special currency to spend for its growth, Its equity.
    They are smart enough to utilize this in 2020 by raising 4kcr via QIP, by diluting just around 3% equity they have increased the Networth by 60%.
    Please note that their networth is hardly 15k cr today, terminal potential could be in lakhs of crs.

  2. Dmart has a history[even before IPO] of funneling 1.5-2x of yearly free cashflows into store expansion, the additional cash requirement is funded with debt & when the time it right- they go for equity dilution.

  3. Their inventory turnover ratio has been sliding downward from 14.5 to 12.5 levels, despite them still being the best- terminal inventory turnover numbers could be far lower- Which means more money requirement for incremental growth.
    So, I’d suggest modeling that number to trend downward and settling at 8-9x on a terminal number while computing the free cashflow number.

  4. Simply putting the terminal P/E at 50x doesn’t make much sense, it all depends on the growth & longevity of growth. - In 10 years a lot can change for instance, a coupe of years back Quickcommerce didn’t even, exist now people are projecting it to be 5bill$ by 2025.
    Putting more reasonable estimates in line with Walmarts of the world removes any element of surprise.

Disclosure: No holdings.

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Quarterly results much below expectations. Although income grew 26% YoY, profit only grew 7% YoY. Tomorrow can be brutal for the stock

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I am not completely convinced that the results were bad. There were no significant store additions in the last 9months which might have resulted in lower revenue growth but that is expected to be compensated by adding stores in Q4. Also the profitability front, lower margins are a result of lower discretionary spending by families. FMCG sales which are a low margin business is doing great. We just saw the festive season and the demand has normalized. We can see the Discretionary Business gaining traction going ahead. Also with increasing stores and sustainable revenue per sq between 35000-40000rs, we can see good growth in the topline and if they can maintain these margins, the bottom line will grow too.

Coming to the valuation front, it is now trading at 56 times EV/EBITDA of FY24 estimates. So yes, we can see some brutal downward momentum from the stock next week, but that will only give a good opportunity to buy the stock at good levels. Looking at the charts, the 200 Week EMA is at 3200. so there is a good chance the stock will see those levels in coming weeks.

I can be wrong, so don’t take this post as an investment advice.
Invested in this stock.

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