DMart operator’s shares jump 6 per cent after Q1FY20 results; Should you buy or sell stock?

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Published: July 15, 2019 5:52:23 PM

Shares of Avenue Supermarts surged Monday after the company posted stellar results for the first quarter of FY20. The company’s shares opened at Rs 1,430 per share on BSE as against the last close of Rs 1,359 per share.

In early trade, MSCI's broadest index of Asia-Pacific shares outside Japan tacked on 0.6% after a steep 3% loss the previous week. (Representative image)Avenue Supermarts shares surged 6 per cent after the company reported stellar quarterly results

Shares of Avenue Supermarts, operator of retail chain D-Mart, surged Monday after the company posted stellar results for the first quarter of FY20. The company’s shares opened at Rs 1,430 per share on BSE as against the last close of Rs 1,359 per share and surged 6 per cent to hit at Rs 1,447 per share. The operating company of DMart supermarket store chain posted a 65 per cent increase in its profit after tax to Rs 334.99 crore quarter-on-quarter.  The consolidated revenue for the quarter ended June 30, 2019, stood at Rs 5,815 crore, as compared to Rs. 4,576 crore in the same period last year. The EBITDA margin improved from 9.2% in Q1 FY19 to 10.3% in Q1 FY20. Brokerage firm Motilal Oswal Financial Services has maintained SELL on the stock as pricing points across other retailers are in a similar range. Additionally, management has cautioned that 1QFY20 margins need not be a reflection of the entire year, Motilal Oswal said in a report.

Motilal Oswal has marginally revised up its estimates. “However, we have factored in gross margin/EBITDA margin at 15%/8.9%, ~100bp lower than 1QFY20 levels, given the ongoing hyper-competitive intensity. Subsequently, we arrive at a TP of INR1,215 (earlier TP at INR1,115) based on 26x EV/EBITDA on FY21E EBITDA of INR28.5b,” the brokerage firm said Monday. 

Prabhudas Lilladher has maintained HOLD on Avenue Supermarts’ stock with a target price of Rs1,338. Although absolute returns might be back ended due to an estimated fresh supply of Rs62bn in QIP and OFS by March 2020, the brokerage firm noted. It believes the benefits of higher store openings in Apr-Jun boosted sales while 40bps margin expansion was led by operating leverage.

“We believe the benefits of higher store openings in 1Q boosted sales while  40bps margin expansion was led by operating leverage. We estimate 37.4% PAT CAGR over FY19-21. However, valuations at 49.8xFY21 EPS factor in the expected growth,” Prabhudas Lilladher said in a report. 

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