Avenue Supermarts in focus; stock surges 6%, nears record high

Shares of Avenue Supermarts, which runs the DMart chain of stores in the country, rallied 6 per cent to Rs 2,505 on the BSE in the morning trade on Tuesday on expectation of better sales during festive season Diwali. The stock is 2 per cent away from its record high level of Rs 2,559, touched on February 13, 2020.

In the past month, the share price of Avenue Supermarts has zoomed 25 per cent, against a 10 per cent rise in the S&P BSE Sensex. 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 fast-moving consumer goods (FMCG) and staples demand remains robust. September 2020 sales of all stores exceeded September 2019 sales for FMCG and Staples while General Merchandise and Garments did lesser sales in the same period. However, discretionary consumption has seen significant improvement over Q1FY21, it said.

Further, it has expanded its e-commerce operations (‘D-Mart Ready’) in select pin codes of Pune. Trends indicate an enhanced focus on e-commerce owing to change in industry dynamics with the grocery e-commerce industry gaining significant traction during the pandemic.

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.

Meanwhile, the credit rating agency, CRISIL, has assigned CRISIL AA+ ratings with a stable outlook for Avenue Supermart’s long-term ratings and CRISIL A1+ rating for commercial paper.

"The operating performance of Avenue Supermarts is impacted during the current fiscal because of restriction during the lockdown on store operations, sale of non-food products, and lower footfalls. The revenue growth to recover in the remainder of the year, supported by relaxation of all constraints, new store additions," CRISIL said in detailed rationale.

Further, the healthy operating profitability of 8-9 per cent should be maintained over the medium term, barring fiscal 2021 wherein the margin should moderate due to suboptimal fixed cost coverage in the first half.

Overall profitability will be backed by faster breakeven of stores (6-12 months), superior per store revenue compared with peers, the stable proportion of non-food and grocery (F&G) sales, high inventory turnover as well as maintenance of the gross margin at around 15 per cent in spite of increasing competitive intensity, the rating agency said.