Shares of Avenue Supermarts Ltd, which runs the D-Mart chain of stores in India, jumped as much as 3.4% in intra-day trade on Monday after the company reported a healthy profit growth for the third quarter ended December (Q3), but later pared gains as brokerages maintained a dismal view even after the results.
Avenue Supermarts shares hit an intra-day high of Rs 1,940.15, but were later trading at Rs 1,892.65, up just 0.8%. Notably, the stock has rallied over 35% in the last one year compared with a 14% rise in the benchmark Nifty.
The D-Mart operator on Saturday reported standalone profit of Rs 394.3 crore in the December quarter, up 53.3% from Rs 257.1 crore in same quarter in the previous year. Revenue also grew 23.9% year-on-year to Rs 6,751.9 crore during the quarter.
Operating income, or earnings before interest, tax, depreciation and amortisation (Ebtida), increased 30.8% year-on-year to Rs 593.1 crore in the December quarter, while Ebitda margin expanded 50 basis points to 8.8%.
“Topline growth was in line with our estimates. PAT (profit after tax) margin improvement partly reflects the benefit due to revision in corporate tax rates. We have opened 20 stores during the first 9 months of this fiscal,” said CEO and managing director Neville Noronha.
However, research firm Morgan Stanley maintained a ‘underweight’ call on the D-Mart stock with a target of Rs 1,500 per share. Earnings expectations appeared elevated for the stock; changing retail landscape will have implications for its revenue growth and margin, said Morgan Stanley.
It added that the increased price competition may blunt the company’s first-mover advantage and its online business ‘D-Mart Ready’ may dilute margins on cannibalisation of in-store sales.
Another brokerage firm Citi also gave a ‘sell’ call on the Avenue Supermarts stock with a target price of Rs 1,550 per share. The company’s profits are slightly below estimates, said Citi, adding that the focus will now shift to the fundraising.
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