Avenue Supermart shares jump post Q3; here’s what analyst suggests

Shares of Avenue Supermart, which operates retail chain D-Mart, remained in focus today after the food and grocery retailer released its December quarter earnings over the weekend. Billionaire Radhakishan Damani-led firm, which competes with organised players (Reliance, Star Bazzar, Zudio) and online players (Zepto, Blinkit), has reported double-digit growth in its top and bottom line, while it added 5 D-Mart stores during the October-December period of the current fiscal.

Reacting to Q3 numbers, shares of Avenue Supermart gained as much as 2.6% to ₹3,940 on the BSE. The retail stock opened higher for the second straight session at ₹3,920.90 against the previous closing price of ₹3,840.10.

With a market capitalisation of ₹2.52 lakh crore, D-Mart shares trade 6% lower than its 52-week high of ₹4,203 touched on December 7, 2023. The counter slipped to its 52-week low of ₹3,292.65 on March 16, 2023. The stock has given muted returns of 5% in the last year, while it rose over 4% in six months. The counter lost more than 4% in a month, whereas it gained over 1% in past week.  

Axis Securities recommends ‘Hold’

Post Q3, Axis Securities has recommended investors to wait-and-watch and look for improvement in the store. The brokerage has maintained ‘Hold’ outlook on the stock with an upgraded target price of ₹4,150 per share, but cut FY24 and FY25 PAT estimates by 8% and 12%, respectively, to factor in near-term challenges. “The lower salience of the high-margin general merchandise and apparel category impacted the company’s overall profitability growth in Q3FY24. However, the company has seen some stability in GM&A post Diwali,” the report notes.

As per the report, D-Mart is likely to struggle in improving its overall store matrix in the near term as delayed recovery in general merchandise sales continued to impact the margins over the last several quarters. While larger and newer stores have been struggling to improve their store matrix as these stores have higher gestation periods, impacting the overall profitability. Adding to it, increasing competition from organised players (Reliance, Star Bazzar, Zudio) and online players (Zepto, Blinkit) also remain a key concern for the company as rivals penetrate in smaller towns, while D-Mart has largely presence in tier 1 cities.

Profit, revenue grow 17% in Q3 FY24  

In Q3 FY24, Avenue Supermart posted 16.9% growth in its consolidated profit after tax (PAT) to ₹690 crore as compared to ₹590 crore in the corresponding quarter of last year. PAT margin stood at 5.1% in Q3FY24 as compared to 5.1% in Q3FY23.

Total revenue for the quarter stood at ₹13,572 crore, as compared to ₹11,569 crore in the same period last year, registering a year-on-year (YoY) growth of 17.3%.

On the operational front, Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) surged to ₹1,120 crore, as against ₹965 crore in the corresponding quarter of last year. EBITDA margin stood at 8.3 % in Q3FY24 as compared to 8.3% in Q3FY23. The basic earnings per share (EPS) was ₹10.62, as compared to ₹9.10 in the same period last year.

Neville Noronha, CEO & managing director, Avenue Supermarts says, “We ended Q3 FY2024 with a revenue growth of 17.2% as compared to the corresponding quarter of last year. Contribution from general merchandise and apparel has stabilised and trends are encouraging post Diwali. This time the festive season sales were lower than expected in non-FMCG.”

“Within FMCG, agri-staples (ex-edible oil) are going through significantly high inflation. We opened 5 new stores during the quarter. Our total stores now stand at 341,” Noronha adds.

For the nine months ended December 31, 2023 (9MFY24), the total revenue increased to ₹38,062 crore, from ₹32,245 crore in the year ago period. The net profit stood at ₹1,972 crore for 9MFY24, as compared to ₹1,918 crore in 9MFY23. EBITDA in 9MFY24 stood at ₹3,160 crore, as compared to ₹2,866 crore during 9MFY23, while the margin dropped to 8.3% as compared to 8.9% in the same period last fiscal.

In the first nine months of the current fiscal, the Mumbai-based company opened 17 D-Mart stores, with the total number of stores as on date standing at 342. D-Mart is one of the country’s largest supermarket chains that offer a range of home, personal products, foods, non-foods (FMCG) and general merchandise & apparel under one roof. The company opened its first store in Mumbai, Maharashtra in 2002. As of December 31, 2023, the Company had 341 operating stores with a retail business area of 14.19 million sq. ft across Maharashtra, Gujarat, Daman, Andhra Pradesh, Karnataka, Telangana, Tamil Nadu, Madhya Pradesh, Rajasthan, NCR, Chhattisgarh and Punjab.

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