Dmart’s Stock Recovers After Sharpest Drop In A Year As Brokerages Remain Unfazed

Shares of Avenue Supermarts posted their biggest single-day drop in more than a year after the lockdown to curb the new coronavirus pandemic hurt sales of the operator of D-Mart supermarket chain. The stock, however, soon pared most of its losses.

The consolidated revenue of the billionaire Radhakishan Damani-controlled company declined 33.2% year-on-year to Rs 3,883.2 crore in the quarter-ended June. Its net profit plunged 87.6% over the year-ago period to Rs 40.1 crore.

“Unlike developed countries where organised retailers had a surge of customers walking into their stores, it has not happened with the same intensity at our stores,” Neville Noronha, managing director and chief executive officer of Avenue Supermarts, said in the statement accompanying the results. The strong enforcement of store shutdown, restricted movement of people and strict social distancing rules inside stores, Noronha said, had a negative impact on footfalls and sales.

Also, analysts expect the rising competition from online grocery platforms and inconsistent store operations to pose challenges for Avenue Supermarts even as the company expects income to improve gradually in the next few quarters. That may have prompted brokerages to retain their investment recommendations for the company.

Of the 27 analysts tracking the stock, eight each recommend a ‘buy’ and ‘hold’, while the remaining 11 suggest a ‘sell’. The average of Bloomberg consensus 12-month target price implies a downside of 6.8%.

Shares of Avenue Supermarts dropped as much as 6.1%—the biggest intraday fall since January 2019—to Rs 2,180 apiece on Monday. But they soon recovered most of the losses to trade 2% lower. That compares with the benchmark Nifty 50 Index's 1.15% gain.

Here’s what analysts have to say about Avenue Supermarts’ first quarter results:

BofA Securities

• Maintains ‘buy’ rating with a price target of Rs 2,750 apiece.
• First quarter missed expectations despite in line sales.
• Cost pressures likely to be short-term in nature.
• Long runway for growth and strong execution ability.
• Twofold jump in EPS in three years should back premium valuations despite near-term uncertainties.
• Medium-term growth potential remains intact.
• Strong balance sheet raises chances of expedited store addition in the future.

JPMorgan

• Maintains ‘neutral’ rating with a price target of Rs 2,200 apiece.
• Operating performance in first quarter below expectations.
• Inconsistent store operations create uncertainty for second-quarter revenue trajectory.
• Expects positive revenue and margin growth momentum in the second half of the ongoing financial year.
• Rising competition from online grocery retail channels remains a key area to watch.
• Cuts FY21 estimated EPS by 5% on further cuts to revenue assumption.
• Remains neutral given rich valuations.

Motilal Oswal

• Maintains ‘sell’ rating with a price target of Rs 2,000 apiece.
• Estimated same-store-sales growth fell 55%.
• Channel checks indicate healthy recovery trends in same-store-sales growth, albeit remains in negative single digits.
• Risk of slow recovery may extend well beyond the first half of the ongoing financial year.
• Acts as a classic defensive safe haven.
• Values the stock at FY22 estimated EV/Ebitda multiple of 42 times.

Prabhudas Liladher

• Retains ‘reduce’ rating with a target price of Rs 1,695 apiece.
• Sees 80% recovery of pre-Covid sales in most opened stores.
• Lockdown restrictions and slow sales of apparels and general merchandise to weigh.
• General trade and online trade catch-up pose as additional challenges.
• Higher risk of weakness in Covid-19 clusters in Maharashtra, Gujarat and Telangana.