Avenue Supermarts regains Rs 1-trillion market cap, stock nears record high

Shares of Avenue Supermarts, which owns and operates D-Mart stores, hit its 2019 high of Rs 1,643, up 2.5 per cent on the BSE on Wednesday. The stock is 3 per cent away from its record high level of Rs 1,696, touched on December 19, 2018 in intra-day trade.

In the past 10 days, Avenue Supermarts' stock price has surged 9 per cent after rating agency CRISIL assigned CRISIL AA+/stable rating to the company's Rs 200 crore non-convertible debentures and reaffirmed its long-term bank facilities. In comparison, the benchmark S&P BSE Sensex remained flat during the same period.

The recent rally, therefore, helped the firm reclaim the Rs 1 trillion market valuation mark. At 01:11 pm, the company’s market capitalisation stood at Rs 1.03 trillion, BSE data shows.

Despite growing competition, CRISIL expects Avenue Supermarts to maintain its healthy operating profitability of around 8.5 per cent backed by faster break-even of stores (6-12 months), superior per store revenue relative to peers, high inventory turnover, as well as maintenance of gross margin at around 15 per cent.

“The reaffirmation reflects expectation of sustained improvement in business profile supported by strong ramp up in scale of operations, along with cluster focused store expansion and superior store productivity. Ramp up in operations will be supported by higher retail area addition and healthy like-to-like growth of about 15 per cent going forward. As a result, CRISIL expects the company to maintain an annual revenue growth of 20-25 per cent,” the rating agency said in rating rationale.

Moreover, analysts at ICICI Securities expects Avenue Supermart’s healthy revenue trajectory to sustain driven by steady same-store sales growth (SSSG) and pick-up in space addition pace in FY19-21. While food is expected to dominate the share of revenue, enhanced average store size will enable it to stock higher margin general merchandise and apparel products.

“Furthermore, in a bid to contest the potential threat from e-commerce players, D-Mart forayed into the e-commerce space mainly through its D-Mart ‘Ready’ pick up stores. With the organised Food and Grocery (F&G) market still being underpenetrated (mere around 3 per cent market share), there is enough headroom for long term growth, with the margin profile likely to be range bound with a positive bias,” the brokerage firm said in stock talks.

In the past three months, Avenue Supermarts has outperformed the market by surging 26 per cent, as compared to a 6 per cent decline in the S&P BSE Sensex.