Will D-Mart shares continue to create value? Here’s what CEO promised Avenue Supermarts shareholders

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Updated: May 14, 2019 12:07:16 PM

While the recent times have been challenging for DMart investors, the stock has multiplied by more than 4 times since its IPO in less than 2 years.

‘Reduce’ on Avenue Supermarts, TP at Rs 1,300Avenue Supermarts has reported a 21.4% on-year growth in net profit to Rs 203 crore.

After billionaire Radhakrishnan Damani-promoted D-Mart’s growth in the previous fiscal came in lower than anticipated, CEO Neville Noronha said that while the number of store openings was lower than expected, the SSSG (same store sales growth) was pleasantly surprising. Notably, while the SSSG growth for the year came in at a robust 17.8% in FY19, as compared to 14.2% in the previous financial year, the firm added 21 stores in the year. “We hope to do better in FY 2020. Same store sales growth (SSSG) partly made up for this drop in store openings,” Neville Noronha said in an interview to ET Now. In the latest quarter, Avenue Supermarts which runs the D-Mart chain, has reported a 21.4% on-year growth in net profit to Rs 203 crore, while the firm has reported a revenue growth of 32.1% on-year to Rs 5,033 crore. The numbers have come in broadly in line with Street estimates, as a poll by analysts of Bloomberg had pegged net profit at Rs 211 crore and revenue at Rs 5,122 crore for the quarter under review.

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Interestingly, after a stellar run since its IPO in March-17, the shares of Avenue Supermarts have seen a heavy correction from their 52-week highs. The shares are trading 26% lower than their 52-week high level reached in December-18. While the recent times have been challenging for DMart investors, the stock has multiplied by more than 4 times since its IPO in less than 2 years. When asked if the firm could continue to create value for the shareholders in the future, Neville Noronha said that the business was built to what it is today when nobody was watching for an extremely long period of time. “We just did one thing all through those years – single minded focus on the business. The only promise we can make is that we will continue to do so,” he told the channel.

Taking stock of the reported results, brokerage firm Prabhudas Lilladher has upgraded the stock from ‘Reduce’ to ‘Hold,’ as a 25% decline the stock price in the last 5 months has reduced the froth considerably, even though absolute returns might lag due to estimated fresh supply of Rs 6,200 crore in QIP and OFS. The firm has a target price of Rs 1,196 on the shares. 

The research firm said that it has cut its FY20-21 EPS estimates by 5.9% and 10.3% slower rate of store additions with only 21 stores additions in FY19. Avenue Supermarts faces expected dilution of EPS through equity share issue and, moderation of PAT growth to 19.3% in FY19 v/s CAGR of 49% over FY15-18, according to Prabhudas Lilladher.

(Please consult your financial advisor before taking any investment related decision)

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