Avenue Supermarts hits an 8-month low; down 19% in 6-days post Q2 results

The stock dipped 4% to Rs 1,142 on the BSE in intra-day trade, its lowest level since February 9, 2018.

Shares of Avenue Supermarts, which runs the DMart supermarkets chain, hit an eight-month low of Rs 1,142 per share, down 4%, extending their 15% decline in the past five days after the company reported a disappointing result for the second quarter of current fiscal in margin front.

The stock was trading at its lowest level since February 9, 2018. It has fallen 32% from its 52-week high of Rs 1,682 touched on August 2, 2018. The stock hit a 52-week low of Rs 1,063 on February 6, 2018.

Avenue Supermarts (DMart’s) EBITDA (earnings before interest, tax, depreciation and amortization) margin declined 110 basis points at 8.0% in September quarter (Q2FY19) as compared to 9.1% in Q2FY18. The company posted 18% year on year jump in its net profit to Rs 2.26 billion for the quarter ended September 30. Its revenue from operations in the quarter under review stood at Rs 48.73 billion, up 40%, as against Rs 35.07 billion in the year-ago period.

In the recent analyst meet, management had highlighted that the high EBITDA margin may not be sustainable as the company plans to prioritize price competitiveness v/s margin improvements.

“DMart has consistently outperformed its peers, with strong 14% same store sales growth (SSSG) and 9% EBITDA margin (as at FY18). We expect the strong momentum to continue, with a robust revenue/EBITDA CAGR (FY18-21) of 27%/29%, driven by 19% SSSG and healthy store additions (~25) annually. However, risk of competitive pricing by peers has led to gross margin shrinking, and has contained EBITDA margin,” Motilal Oswal Securities said in results flash. The brokerage maintains ‘sell’ rating on the stock with target price of Rs 1,124, on account of rich valuations.

DMart’s Q2FY19 earnings were significantly below our and street estimates on account of weaker than expected margin delivery despite topline beat.

“We like DMart's focus on being competitive on pricing vs peers, ensuring sharper product assortment and proactive investments in the E-Commerce foray (DMart Ready is a revenue/market share accretive format that allows the company to tap into catchment areas beyond store locations; it appears to be scaling up well in Mumbai). However, lower margin delivery highlights the need for competitive pricing (against the backdrop of rising competitive activity amongst brick and mortar retailers and growing interest from E-Commerce players in the grocery segment) to drive revenue growth,” JP Morgan said in a note. The brokerage firm has ‘underweight’ rating on the stock with target price of Rs 1,175.

At 10:29 am; Avenue Supermarts was trading 4% lower at Rs 1,151 on the BSE, as compared to 0.4% decline in the S&P BSE Sensex. A combined 337,546 equity shares changed hands on the counter on the BSE and NSE so far.