Avenue Supermarts gains 5% to hit all-time high; stock surges 16% in 6 days

Shares of Avenue Supermarts, which runs the DMart chain of stores in the country, hit an all-time high of Rs 2,643, up 5 per cent on the BSE in intra-day trade on Tuesday.

The stock surpassed its previous high of Rs 2,559, touched on February 13, 2020. During the six trading days of December, the stock has rallied 16 per cent, as compared to a 3 per cent gain in the S&P BSE Sensex.

Avenue Supermarts, focussed on value retailing, offers a wide range of fast-moving consumer (food and non-food) products, general merchandise, and apparel. The operating performance of the company is impacted during the current fiscal because of restrictions during the lockdown on store operations, sale of non-food products, and lower footfalls. The revenue growth is likely to recover in the remainder of the year supported by relaxation of all constraints, new store additions.

While announcing the September quarter (Q2FY21) results on October 17, the company’s management said that month-on-month sales have improved during this quarter – August was better than July and September was better than August. The management said that the progress of the Covid pandemic and its impact on consumer spending during the festival period will determine the company’s financial performance for the next quarter.

According to analysts at IDBI Capital, the monthly traffic of customers on online grocery retailing platforms like DMart, Grofers, and Big Basket has come down significantly by around 50 per cent. "This is positive for modern retailers like DMart, as the company continues to outperform competition by offering highest discount in most of the categories despite having the lowest contribution from private label products," they said.

In long term, the brokerage firm expects DMart to outperform online grocery retailers on discounting led by distribution-cost advantage. It maintains a ‘positive’ stance on the stock, but advises investors to wait for entry point as the stock is trading above its target price of Rs 2,471 per share.

“Strong procurement abilities, lower-priced products along with strong cost control have led to strong footfalls in past. This leads to high inventory turnover and revenue per sq ft and translates into industry-leading retail store productivity. Aggregate revenue per square foot at about Rs 32,970 in fiscal 2020, is significantly higher than most retailers in the same segment. The operating profitability of the company had seen improvement over the years though fell to 7.6 per cent in fiscal 2020 due to impact on operations in March 2020 due to Covid,” Crisil said in a rating rationale.

The rating agency believes strong track record of outpacing its peers in growth, its strong merchandising and compelling value proposition, the benefit of economies of scale will help strengthen Avenue Supermart’s market share in the organised food and grocery retail in India in the medium term. Going forward, the impact of consolidation in the industry and intensity of competition mainly from online retailers will remain key monitorable, it said.

At 11:51 am, the stock was trading 2 per cent higher at Rs 2,588 on the BSE, as compared to a 0.18 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped two-fold with a combined 2.1 million shares changing hands on the NSE and BSE.