What should investors do with Avenue Supermarts after Q2 results: buy, sell or hold?

Asia's Tech News Daily

Avenue Supermarts, #Buzzing Stocks

Avenue Supermarts share price touched a 52-week high of Rs 5,899.90, rising nearly 11 percent in the early trade on October 18 after the company reported a strong sets of numbers in the quarter ended September 2021.

Avenue Supermarts, which operates DMart chain of retail stores, reported a consolidated profit after tax of Rs 418 crore for the quarter, an increase of 110 percent from Rs 199 crore in the year-ago period.

Sequentially, the profit was significantly higher from Rs 95.36 crore on a low base due to lockdown.

Consolidated revenue came in at Rs 7,789 crore, an increase of 47 percent from Rs 5,306 crore in year-ago quarter. Sequentially, the revenue is higher by 50 percent from Rs 5,183 crore.

Overall gross margin was higher at 8.6 percent compared to4.3 percent in the previous quarter and 6.2 percent in the previous year.

Gross margins have improved year-on-year due to relatively longer hours of operations, higher general merchandise sales, rising staples and FMCG product prices and higher sale of non-essential products.

Here is what brokerages have to say about the stock and the company post September quarter earnings:

Prabhudas Lilladher

We are cutting D’Mart to “accumulate” from “buy” despite 9.2-11.7 percent upgrade in FY22-24 estimates and increase in DCF-based target price to Rs 5,359 (Rs 4,601 earlier), given a 26 percent spurt in stock price in last six trading sessions.

We expect strong momentum to continue in the third quarter led by gains from higher footfalls given the reduction in Covid restrictions, rising consumer confidence due to vaccinations, higher value sales due to inflation in FMCG and general merchandise, upcoming festival season and more locations and product offerings at D’Mart Ready.

Morgan Stanley

Morgan Stanley has downgraded the stock to “underweight” with a target at Rs 4,338 as Q2 earnings missed estimates but were ahead of consensus.

Given strong trailing stock performance, tactically move to “underweight” and await a better price for re-entry.

Credit Suisse

Credit Suisse has kept the “underperform” call on the stock on its extremely stretched valuation and raised the target price to Rs 3,500.

It was a largely in-line quarter and normalcy restored after the second wave. The company has continued to execute well on its proven “everyday low price” strategy.

Macquarie

The research house has kept the “outperform” call but raised the target to Rs 5,950.

The Q2 profit was above estimates, given healthy sales, better mix and cost controls. Macquarie raised FY22/23/24 EPS by 6 percent each to factor in Q2 beat and healthy recovery trends.

The recovery would benefit from increased customer adoption in an inflationary environment.

At 0919 hours, Avenue Supermarts was quoting at Rs 5,624.55, up Rs 294.90, or 5.53 percent on the BSE.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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