Thus far in the calendar year 2020, Avenue Supermarts has overtaken four government-owned companies Oil and Natural Gas Corporation (ONGC), Coal India, NTPC and Indian Oil Corporation (IOCL). It also overtook UltraTech Cement and HDFC Life Insurance Company during the period.
In the past one month, the stock of Avenue Supermarts has outperformed the market by surging 22 per cent on the BSE. In comparison, the S&P BSE Sensex has risen 1 per cent during the period.
According to media reports, Avenue Supermarts is expected to launch a Rs 7,000 crore qualified institutional placement (QIP) in February.
The company’s board, in May 2019, had approved issuance of 25 million shares through QIP. This will reduce promoter’s stake to 75 per cent in adherence to SEBI rule of achieving minimum public shareholding by March 20, 2020. Currently, the promoters hold 79.73 per cent stake in the company.
Avenue Supermarts' December quarter (Q3FY20) results were better-than-analysts' expectations primarily on account of better revenue growth at 24 per cent year-on-year (YoY). The buoyancy in revenue was despite the challenging demand environment. The gross margin expansion trajectory sustained for the third consecutive quarter on account of lower discounting and superior product mix.
Analysts at Antique Stock Broking believe that the management has taken a conscious decision in FY20 to lower the product discounting as the margins were impacted in FY19 on account of aggressive price cuts taken to drive the revenue. Further, the brokerage firm believes that improvement in product mix, (higher sales of superior margin products like general merchandise) aided gross margin expansion.
“We like the company’s execution capabilities, single format focus, sensible approach towards operating stores which offer healthy profit/return metrics, prudent store expansion strategy and strong focus on customer satisfaction. It has been able to attract new customers profitably (without having any loyalty programme) with its low price positioning, sharper product assortment and efficient execution. Despite its capital-intensive strategy of ownership (vs renting), its asset turns are similar to those of its peers,” analysts at JP Morgan said in a recent note. However, the stock was trading above brokerage firm' December 2020 price target of Rs 1,960.