Avenue Supermarts dips 6% post Q1 nos; Analysts cut target price up to 34%

The quarter, which was nearly washed-out due to the nationwide lockdown imposed to stem the spread of coronavirus, saw the company's profit after tax margin sliding to 1%, compared to 5.5% in Q1FY20

Shares of Avenue Supermarts tumbled 6 per cent to Rs 2,182, in an otherwise firm market, on the BSE on Monday after the firm's consolidated net profit for the June quarter declined 87.61 per cent to Rs 40 crore compared to a profit of Rs 323 crore in the same quarter last year.

The quarter, which was nearly washed-out due to the nationwide lockdown imposed to stem the spread of coronavirus, saw the company's profit after tax margin sliding to 1 per cent as compared to 5.5 per cent in Q1FY20.

Avenue Supermarts Ltd, which owns and operates DMart stores across the country, said its consolidated total revenues fell to Rs 3,883 crore from Rs 5,815 crore in the year-ago quarter.

"Covid-19 continued to spread across the country. The ensuing restrictions have had a significant impact on our operational and financial performance in the quarter," said CEO and Managing Director Neville Noronha. "Our revenue, EBITDA and profit for the quarter were significantly lower as compared to the same quarter last year," he said in a statement. READ HERE

"Our channel checks suggests that Jul’20 is being impacted by the second phase of lockdown, with nearly 20 per cent of stores being closed once again. The NonGrocery category is operating at double-digit LTL decline. Thus, there is risk of slow recovery, which could extend well beyond 1HFY21. We value D-Mart at an FY22E EV/EBITDA multiple of 42x, maintaining TP of Rs 2,000 (20% discount to the three-year average EV/EBITDA multiple of 53x). This still implies a 14 per cent downside," said analysts at Motilal Oswal Financial Securities in a result update. The brokerage has 'sell' call on the stock.

DMart said that discretionary consumption continues to be under pressure, especially in the non-FMCG categories which is "impacting the gross margins negatively".

"Store operations and duration of operation per day continue to remain inconsistent across cities due to strict lockdowns enforced by local authorities from time to time," said the company in a statement.

"Gross margin narrowed by 245 bps yoy to 13.7 per cent on lower sales of higher-margin products (apparel and other general merchandise). While this was better than expected, higher other expenses and weaker revenues drove a 15 per cent EBITDA miss... Back-of-the-envelope calculation thus indicates that revenues in June 2020 were 80 per cent of last year’s revenues despite a higher number of stores, indicating slower-than-expected recovery in footfalls on account of inconsistent store operations (varying duration of operation) and reduced discretionary spends," said analysts at Kotak Securities. 

They, too, have a 'sell' call on the stock with a target price of Rs 1,480. "Covid-19 is also leading to weaker GMs for Dmart owing to lower general merchandise sales on account of lower demand as well as lack of permission to sell non-essentials in stores in certain areas. We thus believe a full recovery in revenues and margins will happen only once the fear of the pandemic subsides completely; this situation is probably a few months away," they said.

"Store shutdowns, restrictions on selling high-margin non-essential products and strict social distancing norms inside the stores contributed towards dismal performance in Q1FY21... We have revised our assumptions of other income in FY21-22E incorporating the impact of expected interest to be earned on QIP money. Our revenue and EBITDA estimates remain un changed. We value the stock at 40x FY22E EBITDA," said analysts at IDBI Capital. Their target price stands at Rs 2,079 with a 'REDUCE' rating.

Global Brokerage Credit Suisse, too, maintained 'underperform' rating on the stock with a target price of Rs 2,000. The brokerage has cut FY21/22 earnings estimate by 13 per cent/8 per cent

At 11:00 am, the stock was trading 3.53 per cent lower at Rs 2,240 apiece on the BSE, as against 368 points, or 1 per cent, gain in the benchmark S&P BSE Sensex index at 36,962.65 level.