Will D-Mart increase speed up its store expansion?A pedestrian walks past a D-Mart supermarket operated by Avenue Supermarts Ltd. (Photographer: Dhiraj Singh/Bloomberg)

Here’s What Led To Avenue Supermarts’ Worst Close Since Listing

Avenue Supermarts Ltd., operator of retail chain D-Mart, suffered the worst single-day drop since its listing in March 2017 after rising competition from online retailers hurt its September-quarter margins.

The stock closed 6.2 percent lower at Rs 1,323.70 apiece on the National Stock Exchange Ltd., after falling as much as 7.5 percent intraday—the most since April 2017.

Net profit of the Radhakishan Damani-promoted retailer rose 18.6 percent year-on-year to Rs 225.7 crore in the September quarter, according to its exchange filing. That compares with Rs 244.5 crore consensus estimate of analysts tracked by Bloomberg. Revenue, however, increased 38.9 percent on a yearly basis to Rs 4,872.5 crore—higher than the Rs 4,457-crore estimate.

Here’s What Led To Avenue Supermarts’ Worst Close Since Listing

Other Highlights

  • Earnings before interest, tax, depreciation and amortisation increased 22.6 percent on a yearly basis to Rs 389.7 crore; That’s against an estimated Rs 416 crore.
  • Margin stood at 8 percent compared with 9.1 percent a year ago; The figure was estimated at 9.3 percent.

The growth in top line was despite a high base, according to Jefferies. Rising competition from online retailers forced the company to cut prices, it said. As a result, gross margins, it said, fell 160 basis points during the period–the first such decline in four quarters.

Gross margins represent the percent of total sales revenue the company retains after incurring the direct costs associated with producing the goods and services it sells.

About 53 percent of the analysts tracked by Bloomberg have a ‘Sell’ rating on the stock, while the rest recommend a ‘Buy’ or ‘Hold’.

Credit Suisse, which initiated a coverage with an ‘Underperform’ rating, said the company is likely to face margin pressure, challenges from online retailers and steep valuations.