Avenue Supermarts down for seventh straight day; stock hits five-month low

In the past seven trading sessions, the stock has slipped 14 per cent, as compared to 0.36 per cent rise in the benchmark S&P BSE Sensex in the same time period

Shares of Avenue Supermarts were trading lower for the seventh straight day, down 2 per cent, at Rs 1,304, to hit five-month low on the BSE on concerns of flat operating margin in the March quarter (Q4FY19).

The stock was quoting at its lowest level since October 31, 2018. In the past seven trading sessions, it has slipped 14 per cent, as compared to 0.36 per cent rise in the benchmark S&P BSE Sensex in the same time period.

Avenue Supermarts, which owns and operates D-Mart supermarket chain, had reported 200 bps declined in Ebitd (earnings before interest, tax, depreciation and amortization) margin at 8.3 per cent in December quarter (Q3FY19), from 10.3 per cent in Q3FY18. The company had posted 2.1 per cent year-on-year (YoY) growth in net profit at Rs 257 crore, primarily due to gross margin reduction on account of price cuts.

"Operating costs inched upwards due to preloading of certain expenses primarily around capability building across infrastructure and people." the company said in an exchange filing.

Analysts at Edelweiss Securities expect D-Mart to post around 31 per cent YoY revenue growth on a base of around 23 per cent (Q3FY19: around 33 per cent YoY growth on a base of around 23 per cent) aided by around 15 per cent SSSG for the quarter.

“We also expect new stores added over the past 24 months to sustain around Rs 350-400 million p.a. run rate. We expect EBITDA margin to be flat or expand slightly,” the brokerage firm said in Q4FY19 quarterly preview.

Analysts at Antique Stock Broking believes D-Mart's unique and profitable model in the online space will continue to bear fruits, going ahead.

However, the high intensity of price competition by online players (especially Grofers) may keep D-Mart’s gross margin range-bound between 14-15 per cent; we expect it to decline moderately by 38bps to 14.5 per cent in 4QFY19, the brokerage firm said in company update.