Nothing in life is sure, except perhaps death (both for investors & their companies). In general they have been fairly conservative in guidance. Not expanding margins is actually a strategy to deepen moats in retailer. Question is not on margins but whether they can get higher economic benefit from OEMs at higher scale (imo this is a given). If they decide to pass that benefit to customers, then they create ‘scaled economies shared’ (Scale Economies Shared) which actually creates a very powerful virtuous cycle loop.
I expect PAT margins to be maintained with higher scale & operating leverage. Actually margin is only 1 aspect of the picture. You get a 80% ROCE 100% ROE business at 30 time earnings growing at 25 i think its time to close your eyes & buy (efficient retailers always are priced highly not cheaply; covid-20 was an anomaly for AVL and investors did not know their story back then; those valuations are unlikely to reoccur)
Hardly so. they have hardly 1% market share in a market growing at 12-15%. Discretionary spending is about to take off. Penetration levels in Bihar & East india are quite poor. I wouldnt be surprised if they keep doubling revenues for a decade followed by a decade of 15% growth. This quality of growth deserves a higher PE multiple imo (of course AVL will have to prove their mettle outside bihar, which they have already set out to do).
i think investing needs one to follow on ground feedback. On ground feedback is that the set of people & population they address is not even entertained by amazon & flipkart. Investor’s house helps, drivers and so forth buy from AVL. They get great service (Amazon and flipkart both suck when it comes to servicing white goods), they get same day delivery (Only amazon comes close only in metros), they get EMIs (will amazon offer an EMI to our driver or house help? Please think.
This amazon & flipkart point is like saying “Dmart wont exist , trent wont exist because everyone will always order everything on amazon”. Perhaps. But there is no indication of this happening in next 3 years. Investing is always with a rolling 3 year period. Beyond that, i dont have any visibility. When the
facts change, id be more than happy to change my thesis
It wouldnt, AVL will rerate even from here. That is how efficient retailers are treated. 30 time earning must be seen in conjunction with how the sector has been treated. They have already started expanding in jharkhand (read the annual report). Chhattisgarh, UP, WB expansions in next year.
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