Radhakishan Damani’s Avenue Supermarts saw its share value surge to a fresh all-time higher of Rs 3,130 per share on Monday morning as investors reacted to the robust earning development of the firm. Avenue Supermarts, which personal and operates the supermarket chain DMart, on Saturday, reported a 16.3% on-year jump in net profit to Rs 446.95 crore for the October-December quarter of the present fiscal year. This robust development in income was aided by an 11% jump in income for the firm as consumption picked up with India moving away from lockdowns as it looked to manage the spread of the coronavirus.
Results beat estimates
However, analysts do not look to be interested in providing a ‘buy’ contact to the stock in spite of its stellar overall performance. Domestic brokerage and investigation firm Kotak Securities mentioned that the income development was ahead of expectations driven by robust festive demand, close to-regular retailer operations and steady recovery in basic merchandise sales. It did raise earning estimates expecting stronger margins but gave a ‘sell’ recommendation with a fair worth of Rs 1,885. “Sharp stock price performance bakes in consistent revenue growth (possible, in view of large growth opportunity) and margin expansion (difficult, in a competitive business which may see sizeable capital infusion from peers in the near-term),” they added.
Valuations stretched
Since October, the stock value of Avenue Supermarts has jumped more than 50% generating the valuations stretched. Analysts at Yes Securities mentioned that the stock is presently trading at 68x FY23E P/E and 45x EV/EBITDA. “We, therefore, expect a period of consolidation in the stock with investors waiting to see the impact of aggressive online competition in the grocery space,” they added.
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Pickup in earnings does give a robust outlook for what is in retailer for the firm but the current run-up is believed to have left no area for additional development in stock value.HDFC Securities has improved its EPS estimates by 5-6% to account for marginally larger income/sq. ft, but has downgraded the stock to ‘sell’ saying that the current run-up leaves no area for an investment case. “An extended slump in non-essential sales could mean that discounting in staples will be lower, thereby opening up the space for competition. This, coupled with punchy valuations, leaves no margin of safety/error for the investor and the business,” they added.
E-commerce push to watch out for
The renewed concentrate on Radhakishan Damani’s DMart on e-commerce is, nevertheless, discovering a favourable response. “Factoring beat in performance, we revise up FY21/22E PAT 11%/8%. Also, increased e-com aggression and potential market share gains enhance growth sustenance visibility,” mentioned Edelweiss Securities in a note. With a target value of Rs 2,864 per share, Edelweiss has a ‘Hold’ rating on the scrip.