Avenue Supermart Falls 4% After Q2 Net Profit Slips 9.09% YoY; Should You Buy?

Avenue Supermarts share price: Shares of Avenue Supermarts, which runs the famous retail chain D-Mart, slipped as much as 4 per cent in early trade on Monday to the day’s low of Rs 3771.7 apiece after reporting a weak set of numbers for the September-ended quarter.

The company’s consolidated net profit for this period was Rs 623.35 crore, marking a 9.09 per cent decrease from the Rs 685.71 crore recorded in the same quarter last year.

In comparison to the previous quarter, the company saw a 5.36 per cent decline in its consolidated net profit, which dropped from Rs 658.71 crore to its current figure.

Looking at standalone net profit, there was a 10.91 per cent reduction, with the company reporting Rs 658.54 crore for Q1FY24, as opposed to the Rs 730.4 crore achieved in the corresponding quarter of the previous year.

However, there was a notable positive trend in the company’s revenue from operations. Avenue Supermarts reported an impressive 18.66 percent year-on-year increase in consolidated revenue, with a total of Rs 12,624.37 crore in the current period compared to Rs 10.638.33 crore in the same period last year. This revenue also saw a 6.39 per cent rise from the previous quarter, which stood at Rs 11,865.44 crore.

What Should Investor’s Do Now?

Top brokerages highlighted sustained margin pressures in the company’s operations while a couple of them cut their FY24 net profit estimates.

Among them were Jefferies which reiterated a ‘Hold’ on the stock, citing concerns over the company’s general merchandise & apparel mix business which drove margin pressure. Kotak Institutional Equities, though raised its price target, recommended a ‘Sell’ on the stock.

Meanwhile, both Nuvama and Motilal Oswal cut FY24 profit after tax (PAT) estimates even as they maintained a buy rating on the counter.

Brokerage Nuvama retained a hold stance on Avenue Supermarts while recommending a target of Rs 4,021. It said that there was a positive spurt in productivity in the September quarter as the revenue per square feet jumped 6 per cent YoY despite the company missing again on EBITDA, which was up only 12 per cent YoY and below Nuvama’s estimates. The general merchandise & apparel (GM&A) share stayed below pre-Covid and was even down YoY, which was a surprise, the brokerage said.

Motilal Oswal has cut its FY24E PAT by 4.6 per cent on slower recovery in 1HFY24E but expects gradual improvement from 2HFY24E factoring in a revenue/PAT CAGR of 25 per cent/26 per cent over FY23-25 aided by 16 per cent/8 per cent growth in footprints/revenue productivity. It has assigned a 42X EV/EBITDA multiple on a September FY25E basis to arrive at the target of Rs 4,500 as it reiterated a Buy rating on the stock.