Avenue Supermarts Q3 Results: Profit Rises, Aided By Lower Corporate Taxes

Avenue Supermarts Ltd.’s profit rose in the quarter ended December on the back of lower tax expenses.

Net profit of the operator of the DMart chain of supermarkets increased nearly 55 percent year-on-year to Rs 384 crore, it said in an exchange filing. That, the company said, was aided by the government’s cut in corporate taxes last year.

The company’s revenue grew nearly 24 percent over the previous year to Rs 6,815 crore, while operating margin expanded 50 basis points at 8.84 percent.

“Our topline growth was in line with our estimates. PAT (profit after tax) margin improvement partly reflects the benefit due to revision in corporate tax rates,” Ignatius Navil Noronha, chief executive officer and managing director, was quoted as saying in a statement accompanying the filing. “We have opened 20 stores during the first nine months of this fiscal.”

The earnings performance is an improvement over the previous quarter, when its revenue growth failed to meet analysts’ estimates. Its profit grew 47 percent in the three months through September.

Concerns, however, persist around Avenue Supermart’s valuation.

“DMart’s investments in building leadership talent, distress in real estate prices and opening itself to the leasing model would gradually accelerate store expansion,” Ambit Capital wrote in a recent note, which has a target price of Rs 2,200 per share—an upside of nearly 17 percent to its closing price on Friday. “Valuations of 68x (times) /54x FY21/FY22 EPS (earnings per share) will fade quickly as earnings compound 23 percent over next decade.”

Equity supply remains another key concern, with the promoter holding in the company at around 79.7 percent. Stakes held by domestic mutual funds and foreign institutional investors stand at nearly 4.17 percent and 6.21 percent, respectively. The promoters diluting stake to comply with shareholding norms could potentially remove a major overhang on its stock.