Dmart Q2FY22 sales substantially ahead: Dmart’s Q2 operating statement suggests that: 1) standalone sales grew 46.6% y-o-y (c29% more than regular quarter Q2FY20), considerably above our expectation 2) Dmart added net eight retailers in Q2, taking the total retailer count to 246 and 3) in our view, the sustained recovery momentum suggests, in spite of getting largely on offline retailer, how resilient Dmart’s worth retailing business enterprise model is.
Given the stock’s run-up in the previous one year (up 94% vs Nifty50’s obtain of 54%), the important inquiries for investors are whether or not the valuation (106x FY23e PE) is ahead of fundamentals and whether or not there is a threat of de-rating. In our view, we are nonetheless midway in the evolving higher-development compounding construct investor must continue to remain positive on Dmart.
We believe Dmart has a compelling investment case: 1) Logic of owning Dmart for the extended term is clear, in our view. Given the size of the grocery marketplace (c95% dominated by “mom and pop” retailers), worth retailers, such as Dmart, potentially can have 10x more retailers than at present. This considerable development chance will probably run into several decades. 2) Dmart’s focussed approach of pricing as its competitive edge and driving income by way of scale and the pursuit of reduced charges, tends to make it a formidable business enterprise model to capture this worth for the extended term. 3) We see the starting of an exceptional development phase: driven by the pace of the network roll-out and the revival of in-retailer demand (we pencil in income development of c46% in FY23e) and a decade of possible higher development with a income CAGR of 26-27%, even in subsequent decades DMART has the possible to develop in mid-teens.
4) Perceived expensiveness is misleading and is merely a reflection of the “long duration of growth capture” the marketplace is prepared to assign and cost in for winning business enterprise models, such as Dmart. 5) Unique compounding construct: In our view, provided its extended-term appeal, Dmart in the existing marketplace context will act like a defensive stock, if the marketplace sees volatility, and will continue to outperform, if the bull phase of the marketplace continues.
Reiterate Buy with a new DCF-based TP of INR5,500 (from INR4,000), as we revise our extended-term development prices, reduced our expense of equity (led by a decline in beta) and roll forward our valuation.