 "DMart, avenue supermart, IPO, MSCI")
After hitting its all-time high intraday, the stock of retail major Avenue Supermarts (DMart) slipped over 8 per cent. This was because the margin performance was lower than the Street’s expectations, though revenue growth was strong.
The biggest concern, however, is its valuation, which is on the expensive side. The stock is trading at 124 times its financial year 2022-23 (FY23) earnings estimates, compared with the sector average of 65 times.
Analysts, like Anand Shah of Axis Capital, highlight that at the current price the stock is trading at a market capitalisation (m-cap) to store and m-cap to square feet of $187 million and $4.8 billion, respectively, which is a 5-13 times premium to Walmart. It is also a 4 times premium to Walmart’s peak valuation in December 1999 of $48 million per store, they add.
Despite the sharp fall on Monday, the stock has gained 49 per cent over the past three months and is up 133 per cent since January. Among those that benefited are the company’s Chief Executive Officer Ignatius Navil Noronha, who holds 2.02 per cent of shares in the company. He became a billionaire when the stock rose intraday, but is now worth Rs 6,400 crore.
Most brokerages have downgraded their ratings, given the jump in stock prices. While Kotak Institutional Equities has raised the fair value of the stock to incorporate higher growth for offline and separate value for DMart Ready, Garima Mishra and Shubhangi Nigam of the firm believe that the stock is pricing in perfect execution and limited competition.
Though the company posted an expansion of margins both at the gross and operating profit levels, it missed Street estimates. The improvement in share of the non-essential or general merchandise was positive, though it was not enough to push the gross margin beyond 14.3 per cent while analysts were working with a range of 14.6-15.1 per cent.
The biggest concern, however, is its valuation, which is on the expensive side. The stock is trading at 124 times its financial year 2022-23 (FY23) earnings estimates, compared with the sector average of 65 times.
Analysts, like Anand Shah of Axis Capital, highlight that at the current price the stock is trading at a market capitalisation (m-cap) to store and m-cap to square feet of $187 million and $4.8 billion, respectively, which is a 5-13 times premium to Walmart. It is also a 4 times premium to Walmart’s peak valuation in December 1999 of $48 million per store, they add.
Despite the sharp fall on Monday, the stock has gained 49 per cent over the past three months and is up 133 per cent since January. Among those that benefited are the company’s Chief Executive Officer Ignatius Navil Noronha, who holds 2.02 per cent of shares in the company. He became a billionaire when the stock rose intraday, but is now worth Rs 6,400 crore.
Most brokerages have downgraded their ratings, given the jump in stock prices. While Kotak Institutional Equities has raised the fair value of the stock to incorporate higher growth for offline and separate value for DMart Ready, Garima Mishra and Shubhangi Nigam of the firm believe that the stock is pricing in perfect execution and limited competition.
Though the company posted an expansion of margins both at the gross and operating profit levels, it missed Street estimates. The improvement in share of the non-essential or general merchandise was positive, though it was not enough to push the gross margin beyond 14.3 per cent while analysts were working with a range of 14.6-15.1 per cent.
