Little headroom in Avenue Supermarts' shares: Analysts

KS Badrinarayanan Chennai | Updated on October 14, 2019

Shares of Avenue Supermarts - the owner and operator of supermarket chain DMart is on Monday slipped 1.3 per cent in early trade although it had reported a relatively stable performance for the second quarter of the current fiscal on Saturday.

Radhakishan Damani-owned DMart reported a net profit of ₹322.66 crore for the quarter ended September 30, an increase of 47.54 per cent compared to the corresponding period a year ago.

Avenue Supermarts said its revenue from operations stood at ₹5,990.78 crore in July-September, as against ₹4,892.81 crore in the year-ago period.

"Revenue growth for the quarter was slightly lower than our estimates while gross margin saw improvement over the corresponding period last year due to better revenue mix," said Neville Noronha, CEO and managing director.

It posted an EBITDA of ₹517 crore (₹388 crore), resulted in the improvement of EBITDA margin to 8.6 per cent from 7.9 per cent in the year-ago period.

However, analysts are not too enthusiastic, as they say, the stock is trading at a higher valuation and will face stiff competition from the likes of Reliance Retail.

For Morgan Stanley, which retained its underweight rating on the stock with a target price of ₹1,120 said, the gross margin was largely in line with its estimates, but EBITDA margin of 8.7 per cent was below its 9.1 per cent target.

Credit Suisse said though continues to be very positive on the company’s long-term prospects. It maintains a neutral stance with a target price of ₹1,850.

Citi, however, advice sell on the stock and lowered its target to ₹1,255 (earlier 1,550), the revenue per square feet was below its estimates.

According to Edelweiss Securities, though the company has reported a decent show for the second quarter, it maintains `Reduce’ rating on the stock in the light of margin volatility, entry of Reliance Retail and the stake sale by promoters to 75 per cent (from 80.2 per cent) by March 2020 and hefty valuations. The broking firm set a target price of ₹1,657.

JM Financial said top-line growth was below its expectations.

"Management is fully cognizant of the same - 'revenue growth for the quarter was slightly lower than our expectations,' as per MD & CEO, and to that extent we believe some action would follow sooner or later to lift the same, said JM Financial, which maintained it's buy rate on the stock with a target price of ₹2,070.

Published on October 14, 2019

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