After its blockbuster listing and a 160 per cent rise in stock price till date (in less than a month), Avenue Supermarts, promoter of supermarket chain D-Mart, is now the fifth most valuable company in the consumer space (comprising fast-moving consumer goods and retail). Ahead of it are Hindustan Unilever, Nestle India, Godrej Consumer Products and Dabur India, according to Capitaline data as on April 10.

Avenue Supermarts has recently been hitting fresh peaks almost everyday (all-time high of ₹806.8 on the BSE). On its listing day on March 21, the stock closed at a premium of 114 per cent over its issue price of ₹299.

Also, the company’s m-cap at ₹48,500-odd crore is now equal to the total market cap of retail companies (by definition and irrespective of format, size) including Future Retail, Future Lifestyle Fashions, Trent, Aditya Birla Fashion and Retail, Shoppers Stop and V-Mart Retail.

Most-profitable tag The company’s revenues are much smaller than majority of the FMCG firms and even its closest peer, Future Retail. But it is in demand among investors as it is the most profitable value retailer in the listed space.

“The high premium given to the stock is the result of the strong balance sheet, credible management and differential profit-generating model of the company. Value creation post listing of D-Mart is an eye-opener to some of the established brands in the country,” said Abhishek Roy, analyst at Stewart and Mackertich. Avenue Supermarts’ valuation of 68 times FY18 estimated earnings are extremely stretched and factors in the financial performance of the next one-two years, say analysts.

Book profits: Angel Broking Following the bumper debut of Avenue Supermarts, Angel Broking had advised investors to book profits as it did not expect a re-rating due to stretched valuation. JP Morgan expects the company’s revenues and earnings to grow at a compounded annual rate of 27 per cent and 34 per cent, respectively, between FY17-FY20. However, it cautioned that any minor lapse near term and substantial investments in e-commerce (earnings dilutive) could strain valuation multiples.

In the short term, there are chances of the company moving up the market cap ladder or narrow the gap with the top four most valued companies (FMCG) as FMCG stocks could be affected post-announcement of their Q4 results, wherein they are likely to continue to reflect the effects of demonetisation.

Short-term worries “Our channel checks indicate urban demand growing faster than rural demand as rural markets have yet to fully recover from the demonetisation. The GST rollout (beginning July), drought in South India and forecast of below average monsoon rains could cut into the demand and supply chain in the short to medium term.

Further, a sharp rise in input costs and keener competition are expected to keep margins in check,” said Anand Rathi in a Q4 preview note.