Avenue Supermarts shares at Rs 3,654 or Rs 4,675? Here's what brokerages say

Shares of Avenue Supermarts, operator of DMart retail chain, plunged 6.09 per cent in Monday's trade to hit a day low of Rs 3,627 over its previous close of Rs 3,862.20 after the company's quarterly core profit margins slipped due to weak demand. Avenue Supermarts said its earnings before interest, taxes, depreciation and amortization (EBITDA) margins fell to 8.34 per cent in the third quarter (Q3) from 9.39 per cent a year earlier.

The decline mainly reflected a change in product mix and weaker-than-expected discretionary non-FMCG (fast-moving consumer goods) sales.

At today's day high of Rs 3,627, the stock traded 21.26 per cent lower than its 52-week high of Rs 4,606, hit on September 2 last year.

Two brokerages have cut their respective target prices on the counter.

PhillipCapital maintained a 'Neutral' rating with a revised target price of Rs 3,654 against an earlier target price of Rs 4,000.

"Valuations are expected to remain soft, despite time corrections witnessed in the stock, as margins are under stress from unfavourable revenue mix and higher operating de-leverage led by other expenses. We believe revenue recovery from general merchandising category is still a couple of quarters away given the impact of inflation on low middle-class households," the brokerage stated.

It is further expected that the near-term pain would persist and gross margins may remain under pressure on the back of unfavourable sales mix, PhillipCapital added.

Prabhudas Lilladher reduced Avenue Supermarts' target price to Rs 4,675 from Rs 4,854 (earlier) following disappointing margin performance in Q3 FY23.

"We believe high inflation has impacted the discretionary spends in Q3 which surprisingly impacted even a deep value retailer like DMart. While grocery-centric DMart Ready ramp-up and competition could be other reasons, but we remain confident of the business moat, both in offline and DMart ready model," the brokerage said.

Prabhudas retained a 'Buy' call on the counter while suggesting that "any meaningful correction can be used as a good entry point."

Nuvama Research said Avenue Supermarts posted a weak Q3 FY23 performance on both counts. The company's lower than pre-Covid level revenue growth/recovery, muted store addition and adverse mix dragged gross margin drove an EBITDA miss of 8 per cent, the brokerage said.

AR Ramachandran from Tips2trades said, "Despite a beat in terms of revenue and profit growth, Q3 FY23 margins have taken a beating for Avenue Supermart indicating the high inflation effect on its overall performance. Rs 3,645 is strong support on the daily charts and below which a fall till Rs 3,460 is possible. Strong resistance will be at Rs 3,748."

Q3 profit

Avenue Supermarts reported a 9 per cent rise in its standalone net profit at Rs 641 crore for the quarter that ended December 31, 2022. It reported a standalone net profit of Rs 586 crore in the year-ago period. DMart operator's consolidated net profit rose 7 per cent to Rs 589 crore in Q3 FY23 from Rs 553 crore in the year-ago period. Consolidated revenue rose 25.5 per cent to Rs 11,569 crore.

The company's standalone revenue jumped 25 per cent to Rs 11,305 crore, as compared to Rs 9,065 crore in the same period a year ago.

Meanwhile, Indian equity benchmarks rose in late-morning deals, led by gains in technology and state-owned lenders' stocks.
 

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