DMart Q3 Results Review - Margin Disappoints, Earnings Per Share, Target Cut By 4%: Prabhudas Lilladher
Mix deterioration due to tepid growth in apparel and general merchandise impacted margins.
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Prabhudas Lilladher Report
We cut earnings per share estimates of Avenue Supermarts Ltd. by 4.2/4.3/4.0% for FY23/24/25 following disappointing margin performance in Q3 FY23 (106 basis points YoY Ebitda margin decline to 8.3%).
Mix deterioration due to tepid growth in apparel and general merchandise impacted margins. Cost of retail also moved up by 50 bps YoY as operating leverage failed to benefit in a festival quarter.
We believe high inflation has impacted the discretionary spends in Q3 which surprisingly impacted even a deep value retailer like DMart.
While grocery centric DMart Ready ramp up and competition could be other reasons, but we remain confident of the business moat of DMart, both in offline and DMart ready model.
While we cut estimates, our Q4 FY23 estimates now factor in 28% sales growth, 8% Ebitda margins and 31% profit after tax growth. Given just 22 store openings in nine months-FY23, we expect addition of 18 stores in Q4.
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