Radhakishan Damani’s Avenue Supermarts (DMart) shares gave up early earnings on Monday to fall into negative territory as investors reacted to the January-March quarter results.
Radhakishan Damani’s Avenue Supermarts (DMart) shares gave up early earnings on Monday to fall into negative territory as investors reacted to the January-March quarter results. Hypermarket chain DMart reported a 52% year-on-year increase in net profit during the January-March quarter to Rs 414 crore, with year-on-year revenue growth of 18%. The strong performance was helped by the low base of the previous year. Although performance has been strong, the administration has already warned of headwinds due to the second wave of Covid-19. This has forced major brokerage firms to take a bearish view on the Avenue Supermarts share price. Currently, the share price of Avenue Supermarts is down 0.71%, trading at Rs 2,868 per share.
During the prior quarter, Avenue Supermarts’ gross margins recovered to 14.8%, 10 basis points above mineral-covid levels. However, new restrictions could affect margins in the coming quarters. Additionally, the firm managed to add 13 stores in the quarter, bringing the total count to 22 stores added in the fiscal year. Personnel expenses were also lower in the quarter, helping the company’s financial performance.
Overall in the prior fiscal year, same-store sales growth (SSSG) was -13% due to disruptions aided by the coronavirus. SSSG had recovered 6% year-on-year in January and February before sinking in March when covid struck once more. “We believe this revenue weakness will continue into the first quarter of this fiscal year (with possibly some side effect in 2TFY22 as well); YoY growth figures can still look good due to the favorable base, “analysts at Kotak Securities said.
Avenue Supermarts management warned of short-term drag on store operations due to the second wave of Covid. Other concerns for the company arise from the competitive landscape of the retail industry. Avenue Supermarts remains one of the top earnings cap games in our coverage, however concerns about the impact of the changing competitive landscape (GT / Ecomm surge + Reliance Retail / JioMart upscaling) on earnings potential DMart keeps us out of current valuations, ”said Axis Securities.
Cash-rich balance sheet to help you get ahead
While challenges remain for Avenue Supermarts, analysts at Yes Securities believe the company’s strong balance sheet would help it move forward. “In this environment, the company’s strong cash-rich balance sheet will not only help it get through this difficult period, but will also help accelerate its expansion online and offline despite lower performance and cash flows. ”They said in a report. “We continue to like DMART for its best-in-class execution, lower cost of retail sale, aggressive expansion plans, industry-leading asset and inventory turnover, and high conversion and customer loyalty given its EDLP model, even if we had been happier with more and faster growth of their online presence, ”they said.
Should you buy?
Kotak Securities has cut its revenue estimates between 6% and 18% for the fiscal year. They maintain their “Sell” rating at a new fair value of Rs 1,950 per share. Axis Securities is rated ‘Downgrade’ due to the slower escalation of the company, with a target price of Rs 2,850 per share. Motilal Oswal is rated neutral on the stock. Analysts at Yes Securities have an “Add” rating with a target of Rs 3,205, while those at Prabudal Lilladher have a “Buy” rating and a price target of Rs 3,360 each.
(The stock recommendations in this story are from the respective research and brokerage firms. Financial Express Online assumes no responsibility for their investment advice. Consult your investment advisor before investing).
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