DMART Q1FY22 final results tracked ahead of our expectations. (i) Standalone sales rose 31.3% y-o-y. This was impressive as Q1 was marred by lockdowns and disruption amidst a second wave of COVID-19 (which not only restricted the quantity of hours retailers could stay open, but also mandated that they sell only critical supplies). (ii) Ebitda and PAT grew 103% and 132%, respectively, which have been 7% and 13% above our estimates. This is commendable, in spite of the gross margin contraction of 129bp y-o-y due to lockdowns and several restrictions. However, effective expense handle led Ebitda margin to expand 156bp y-o-y. (iii) DMART opened 4 retailers in Q1FY22 (20 in FY21). Overall, a fantastic functionality amidst all the disruption.
What messages must one take away from this?: This is hardly a quarter to make any structural judgement but it is affordable to deduce that in spite of disruptions, DMART has stuck to its core principles of carrying out enterprise. Its worth proposition has remained basically unscathed in spite of getting largely a physical retailer. Even although development appears fantastic, it is from a low base, and income is nonetheless under that of Q1FY19. However, healthier income in spite of the challenges shows how resilient DMART’s enterprise model is .
We think DMART nonetheless has a compelling investment case: (i) We anticipate income to rebound in FY22e, driven by powerful SSSG due to the reduced base and network rollout. We estimate income development of 30% and earnings development of 54% for FY22e. FY23e is most likely to witness an exponential rebound in income development and income in our view. We pencil in income development of 48%. (ii) We consider DMART has a prosperous enterprise model for worth-searching for customers. (iii) DMART’s presence is nonetheless nascent at 238 retailers, which could more than quadruple more than the next decade, creating it one of the most profitable network rollout plays in our coverage.
Maintain Buy: DMART’s present valuation demands earnings develop at a CAGR of c19% more than the next 15 years, which is achievable, in our view. We raise our FY22-24e earnings and roll our valuation base forward to July 2021 from June 2021. As a outcome, our TP increases to `4,000 (from Rs 3,900). Our DCF-based TP implies c18% upside from present levels.