Avenue Supermarts slips 6%, hits over 6-month low post Q3 results

Shares of Avenue Supermarts, which owns and operates D-Mart stores, hit an over six month low as they slipped 6 per cent to Rs 3,627 on the BSE in Monday’s intra-day trade. The fall comes after the company reported subdued operational performance in the December quarter (Q3FY23).

The stock of the retail chain operator was trading at its lowest level since July 5, 2022. In the past one month, the stock has declined 11 per cent, as compared to 3.4 per cent rise in the S&P BSE Sensex. Moreover, in the past three months, it has slipped 16 per cent, as against 5 per cent rally recorded by the benchmark index.

D-Mart reported a subdued operational performance with profitability coming below analysts’ estimates in Q3FY23. As guided by the management in its prequarterly update, Avenue Supermarts reported consolidated revenue growth of 25.5 per cent year-on-year (YoY) to Rs 11,569 crore. The company’s profit after tax grew 7 per cent YoY at Rs 589.60 crore.

With the discretionary product mix being impacted, gross margins for the quarter came in below estimates at 14.8 per cent. Earnings before interest, taxes, depreciation, and amortization (Ebitda) margins declined by 100 bps YoY to 8.6 per cent from 9.6 per cent in Q3FY22.

“Q3 saw standalone revenues grow by 24.7 per cent over the corresponding quarter of last year. FMCG and staples segment continued to outperform the general merchandise and apparel segments. Gross margin percentage decline over the corresponding quarter of last year is a reflection of this mix change. Discretionary non-FMCG sales did not do as well as expected in this quarter,” the management said.

The recovery of revenue per store indicates that D-Mart has surpassed the pre-Covid level. However, a nearly 20 per cent higher average store size and weak demand in the non-food category affected revenue per sqft, Motilal Oswal Financial Services (MOFSL) said in its result update.

“We are cognizant of the prominence of new-age grocery models, their rich valuations, and weak management commentary on the non-food category, as well as lower revenue per sqft in the last few quarters. Accordingly, we value the company at 50x EV/EBITDA on FY24E basis and maintain our Neutral rating on D-Mart with a target price of Rs 4,050, given its expensive valuation,” MOFSL said.

Over the last three years, the company has expanded its square feet addition by an impressive three-year CAGR of around 23 per cent with average size of new stores being bigger (over 60,000+vs. average 35,000 sq ft). The new larger stores, which were designed to provide more space for discretionary products, have never got an opportunity to function in normal circumstances over the last two years.

Hence, the revenue throughput per sq ft has remained below pre-Covid levels. Though the business demand scenario has now normalised, the company has not yet attained pre-Covid levels on the revenue per square feet front and an improvement in the same is paramount,” ICICI Securities said in a note.