Avenue Supermarts have given stellar returns to its investors in the last 5 years, increasing investor wealth nearly five times in this period. The stock surged from around ₹760 in May 2017 to currently trade at ₹3,657 per share, rallying as much as 381 percent in this period.
In the last 1 year, when most stocks gave negative returns on the back of weak domestic as well as global cues due to COVID and its consequent impacts, the stock has risen 26 percent. In comparison, the benchmark Nifty is up 9 percent in the last 1 year.
Avenue Supermarts owns and operates DMart stores. DMart is a supermarket chain that offers customers a range of home and personal products under one roof. DMart has a presence in over 110 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana and Chhattisgarh. The Company has multiple stores in cities, such as Mumbai, Ahmedabad, Baroda, Bengaluru, Hyderabad, Pune and Surat.
The firm, on Saturday, reported a 3.11 percent increase in its consolidated net profit to ₹426.75 crore for the fourth quarter ended March 2022. It had posted a net profit of ₹413.87 crore in the January-March quarter a year ago. Despite muted profit growth, its EBITDA grew 21 percent YoY driven by aggressive store expansion (21 stores in Q4FY22) and healthy cost optimization, following a weak same-store sales growth (SSSG) that softened revenue growth.
Post the earnings, ICICI Securities upgraded Avenue Supermarts from 'Sell' to 'Buy' with a target price of ₹3,900.
ICICI Securities stated that DMart's stock upgrade is not just because the stock has corrected 45 percent from its high.
In FY22-24E, the brokerage believes Avenue Supermarts has value and volume tailwinds: inflation (higher absolute gross profit per unit, operating leverage) and likely higher footfalls as more consumers prioritise value (read lower prices in the trading area).
ALSO READ: Macquire says DMart is likely to ‘outperform’; cuts price target by 3%
Furthermore, it added that the company will look to accelerate store expansion and the benefit of the recent expansion is yet to fully kick in – revenue intensity is lower than pre-Covid levels. At 61x FY24E P/E, we find valuations palatable, it said.
"The management has also highlighted that demand for general merchandise and apparel business has still not recovered and inflation is allowing to deliver relatively better value to shoppers and manage costs better," ICICI Securities added.
Meanwhile, another domestic brokerage firm Motilal Oswal stated that DMART's strong growth in footprint and cost optimization measures led to healthy 21 percent EBITDA growth even amid the Omicron wave. However, for the first time, the management deliberated whether the current quarter's soft performance was due to any secular shift in eCommerce, it added.
MOSL said,"We are cognizant of the prominence of new-age grocery model and its rich valuation. Hence, we maintain our Neutral rating with a target price of ₹3,500 assigning 42x EV/EBITDA on FY24E basis."
