Our DMart stock upgrade is not only due to the fact that the stock has corrected 45% from its high A broad-based market correction (and perhaps some technical reason) brings rationality to BAAP (buy-any-price) stories. In FY22-24E, we believe that it has values and volumes: (i) inflation (higher perfect gross profit per unit, operating leverage) and (ii) higher consumer prices, probably higher priority. Furthermore, we believe that this will accelerate the expansion of the store, and the benefits of the recent expansion may still be fully realized – the intensity of revenue is lower than the pre-covid level. At 61x FY24E P / E, we find the ratings delicious. Upgrade to buy; TP 3,900.
Q4FY22 – Revenue growth led by better mobility: Revenue / Ebitda / PAT increased by 18% / 20% / 7% respectively. On a 3-year CAGR basis, revenue and Ebitda growth were 20% and 25%, respectively. The growth rate has softened somewhat despite the almost-normal operating limitations due to the impact of Covid in January ’22; However, management highlighted that Mar’22 has had a strong recovery and a modest-like increase compared to Mar’21. We noticed that most retailers highlighted lower footfall (vs. pre-covid level) but higher conversion (or bill size in the case of DMart). Management further highlights that (i) the demand for general commodities and clothing business has not yet recovered and (ii) inflation is allowing buyers to deliver relatively better prices and manage costs better.
Demart Ready has doubled its revenue over the previous year and has continued to scale up well as activities have expanded to 7 new cities (12 cities in total).
Store Additions: DMart added 21 stores to the quarter (FY22: 50), bringing the total number of stores to 284 (11.5 million square feet). DMart seems to be adding larger stores – according to our calculations, the average size of a new store is ~ 57,100 square feet versus the overall average of ~ 40,500 square feet.
Weak Gross Margin Print: Gross Margin ~ 10bps yoy decreased to 14.3%. As highlighted above, a weak mix tends to affect the gross margin print. Second, DMart seeks to increase collection efficiency and sharpen reserves (at the time of current inflation). Nevertheless, the Ebitda margin has expanded to ~ 20bps yoy 8.6% which was initially driven by the operating leverage facility.
Assessment and Risk: We basically maintain our earnings estimates for FY23E / FY24E; We model 35% / 42% / 45% revenue / Ebitda / PAT CAGR compared to FY22-24E. Buy (from sale) upgrade with DCF-based unchanged target price of Rs 3,900.