Avenue Supermarts surges 5% on healthy revenue recovery in December quarter

With today's rally, the stock has surged 52 per cent in the past three months, as compared to 21 per cent gain in the S&P BSE Sensex

Shares of Avenue Supermarts, which owns and operates retail chain D-Mart, rallied 5.5 per cent to Rs 3,130, also its record high, on the BSE on Monday after reporting a healthy 11 per cent year-on-year (YoY) growth in revenue at Rs 7,542 crore for the October-December 2020 quarter (Q3FY21).

With today’s rally, D-Mart's stock has surged 52 per cent in the past three months, as compared to 21 per cent gain in the S&P BSE Sensex.

At 09:46 am, it was trading 3 per cent higher at Rs 3,050, against 0.82 per cent rise in the benchmark index. Around 450,000 equity shares have changed hands on the counter on the NSE and BSE, so far.

D-Mart reported 20 basis points (bps) EBITDA (earnings before interest, taxes, depreciation, and amortization) margin improvement at 9.1 per cent in Q3FY21, possibly due to easing price competition, even as sales of margin accretive Apparels and Consumer Discretionary remain low. It posted increase of 16.39 per cent in its consolidated net profit at Rs 447 crore for the quarter under review.

The management said the quarter has seen further improvement in business and financial metrics. Overall, sales and sales mix is now trending very close to usual times except for specific customer consumption changes post Covid-19. Apparel, laundry, footwear, travel and such relevant out of home usage categories are taking more time to recover, it said.

Agile OPEX management along with a good surge in festival shopping allowed us to deliver a significantly better quarter than the previous two quarters. However, December month didn’t trend as well as the festival months of October and November. Restricted store operations in certain cities post Diwali due to night curfews and weekend closure led to significantly larger declines in those stores versus same period last year, the management said.

Motilal Oswal Securities expects D-Mart to deliver FY20-23E revenue/EBITDA CAGR of 23 per cent/23 per cent, factoring in 18 per cent/44 per cent SSSG (two-year SSG over the low base of FY21) and 40 store additions each in FY22E/FY23E. Unlike other retailers, grocery retailers like D-Mart have seen a swift recovery to almost pre-COVID levels. A further improvement in product mix could improve margin.

Expensive valuations, coupled with risk of growth moderation owing to strong traction in online retailers in a post-COVID world and prominence of deep pocket players like Amazon and Reliance Retail, restrict near-term upside in our view, the brokerage firm said in results update.