Avenue Supermarts falls 7% after margin disappointment

Avenue Supermarts, which runs the D-Mart supermarkets chain, has dipped 7% to Rs 1,318 after the company's EBITDA margin declined 110 basis points at 8.0% in Q2FY19 as compared to 9.1% in Q2FY18.

Shares of Avenue Supermarts, which runs the D-Mart supermarkets chain,  dipped 7% to Rs 1,318 on the BSE in early morning after margin disappointment in the second quarter of current financial year 2018-19 (Q2FY19).

The company’s EBITDA (earnings before interest, tax, depreciation and amortization) margin declined 110 basis points at 8.0% in Q2FY19 as compared to 9.1% in Q2FY18, Avenue Supermarts said in a statement.

The brokerage firms expected EBITDA margin in the range of 9.2% to 9.6% in Q2FY19.

The company posted 18% jump in its net profit to Rs 2.26 billion for the quarter ended September 30. It had reported a net profit of Rs 1.91 billion in the corresponding quarter a year ago.

Its revenue from operations in the quarter under review stood at Rs 48.73 billion, up 40%, as against Rs 35.07 billion in the year-ago period, Avenue Supermarts said in a BSE filing.

“DMart has consistently outperformed its peers, with strong 14% same store sales growth (SSSG) and 9% EBITDA margin (as at FY18). We expect the strong momentum to continue, with a robust revenue/EBITDA CAGR (FY18-21) of 27%/29%, driven by 19% SSSG and healthy store additions (around 25) annually. However, risk of competitive pricing by peers has led to gross margin shrinking, and has contained EBITDA margin,” Motilal Oswal Securities said in  results flash with ‘sell’ rating and target price of Rs 1,124.

At current market price, the stock is expensively valued at 63x/48x FY20/21E P/E. At such rich valuations, we believe there is limited room for re-rating, it added.

“We remain positive on growth potential in D’Mart given strong cluster based strategy, Everyday low prices model and strong balance sheet. We estimate 34% PAT CAGR over FY18-21. However, valuations at 62.3xFY20 EPS of Rs 22.7 and 46.2xFY21 EPS of Rs 30.5 factor in the expected growth,” Prabhudas Lilladher said in result update.  The brokerage firm retain reduce rating on the stock with a target price of Rs 1,285 per share.

At 09:33 am; the stock was trading 6% lower at Rs 1,323 on the BSE, as compared to 0.16% decline in the S&P BSE Sensex. A combined 952,147 equity shares changed hands on the counter on the NSE and BSE so far.