Avenue Supermarts Q1 Review: Brokerages Maintain Stance; Shares Fall
Most brokerages retained their cautious stance on Avenue Supermarts Ltd., the operator of DMart stores, citing below-estimates quarterly earnings and expensive valuations.
Net profit of the supermarket and hypermarket chain fell 74% over the previous quarter to Rs 115.1 crore in the three months ended June, according to its exchange filing. That compares with the Rs 159.7-crore consensus estimate of analysts tracked by Bloomberg.
Revenue declined 31% sequentially to Rs 5,031.8 crore, compared with the estimate of Rs 5,032.7 crore.
Operating margin narrowed to 4.4% from 8.4% in the preceding quarter.
“We believe the margin impact to be one off as a consequence of the Covid-19 restrictions,” Goldman Sachs said in its post-earnings report.
Shares of Avenue Supermarts fell as much as 2% on Monday compared with a 0.44% rise in the benchmark Nifty 50.
Here’s what brokerages have to say about DMart's first-quarter performance:
Maintains ‘buy’ rating with a target price of Rs 3,690 apiece.
“We believe the margin impact to be one-off as a consequence of the Covid-19 restrictions in place.”
Gross margins were negatively impacted due to restrictions on sale of non-essential products and the impact was higher than our estimates.
It believe that higher footfalls indicates continued consumer preference for Avenue Supermarts due to its lower price offering.
Maintains its ‘underperform’ rating with a target price of Rs 2,300 per share.
Revenue growth benefited from a low base, as lockdown last year was far more stringent.
Store count was also higher by 22 over last year, which supported the revenue growth.
Though the decline in overheads did partly offset the gross margin decline, Ebitda margins saw a 400 bps decline sequentially to 4.4% (+160 bps on a low year-on year base).
Maintains neutral ‘rating’ with a price target of Rs 3,220 apiece.
“Our channel checks suggest that the non-discretionary category has seen a healthy recovery to nearly pre-Covid levels once the lockdowns was lifted.”
The management had indicated that it will add 59 stores over FY20-22. It has added 20 stores in FY21. It may look to add 39 stores in FY22, implying 35 store additions over the next nine months, provided there are no further restrictions.
Risk of a moderation in growth, owing to strong traction for online retailers in a post-Covid world; and the presence of deep pocket players like Amazon.com Inc. and Reliance Retail Ltd. restricts the near-term upside.
Kotak Institutional Equities
Maintains its ‘sell’ rating with a revised target price of Rs 2,000 per share from Rs 1,950 per share earlier.
Modern trade has lost share over the past year while e-commerce and general trade have gained.
Overall store addition in FY2022 will probably be more than approximately 30 that the brokerage expects the company to add in a normal year.
Margins under pressure due to restrictions on selling general merchandise.
Maintains its ‘reduce’ rating with a target price of Rs 3,000 per share.
Even as limited sale of general merchandise would have continued to impact margins, the contraction (on year-on-year basis) is sharp.
Believes the benefit of rising staples and FMCG prices is yet to be seen in margins.
Key upside risks are fast turnaround of e-commerce operations and lower-than-expected competitive intensity.