Avenue Supermarts shares soar 15%; here's why

DMart parent Avenue Supermarts' shares zoomed 15% in intraday trade on Friday after the brick-and-mortar retailer reported a 17.5% jump in standalone revenues for the third quarter.

Standalone revenue from operations of Avenue Supermarts stood at ₹15,565.23 crore for the quarter ended December 31, 2024 compared with ₹13,247.33 crore in the corresponding quarter of the previous year, according to the company’s quarterly business update filed with the stock exchanges.

Reacting to the development, shares of Avenue Supermarts opened at ₹3,790 against their previous closing price of ₹3,617.75. The stock hit a high of ₹4,160.40 in early morning trade, taking the company’s market capitalisation to over ₹2.7 lakh crore.

The Radhakishan Damani-owned retailer had posted muted growth in September quarter amid lower productivity of stores as well as fast ramp-up of quick commerce services in large metro cities. For the second quarter ended September 30, 2024, Avenue Supermarts reported 5.77% growth in its consolidated net profit at ₹659.58 crore as compared to ₹623.56 crore during the same period last year. Revenue grew 14% to ₹14,444.5 crore, the lowest growth in a quarter ever. On the operating front, earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin declined by around 30 basis points year-on-year to 7.9% (below estimates) largely due to operating deleverage. Net profit margin also declined by around 30 bps to 5.1% during the second quarter.

Citing disruption from quick commerce players, ICICI Securities in October 2024 downgraded Avenue Supermarts shares to “Reduce” from “Add”, with a revised target price to ₹4,100 per share from ₹5,400 earlier. Accelerated ramp-up of online grocery formats in large metro cities led to deceleration of key growth metrics for DMART, the brokerage said. “Overlap of consumers seeking convenience and shopping at DMART (value) appears to be higher than expected which should continue to impact its growth trajectory. Further, scale-up of DMART Ready continued to be significantly lower (+21% YoY in 1HFY25) vs quick commerce despite lower absolute size,” it said in a note.

ICICI Securities cut its earnings estimates by 14%/17% for FY25E/FY26E due to lower revenue growth assumptions due to the impact of quick commerce and operating margins (due to operating deleverage), “modelling revenue/EBITDA/PAT CAGR of 17%/16%/15% over FY24-26E.”

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