Avenue Supermarts surges 6% after reporting strong numbers for June quarter

Shares of Avenue Supermarts -- the company which owns and operates D-Mart stores -- gained 6.5 per cent to Rs 1,444 on the BSE on Monday in the early morning trade after the company reported a strong set of numbers for June quarter (Q1FY20) led by store addition and improvement in gross margin.

D-Mart reported a 32 per cent year-on-year (YoY) jump in its consolidated net profit at Rs 323 crore in Q1FY20. Total revenue grew 27 per cent to Rs 5,815 crore on YoY basis.

Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin improved 110 basis points (bps) from 9.2 per cent in Q1FY19 to 10.3 per cent in Q1FY20. As per the management, Q1 is not indicative of the full year profit margins.

The company added eight stores in Q1FY20, which is highest as compared to any other Q1 historically. The large part of additional stores was a spillover from the March quarter (Q4FY19).

Analysts at IDBI Capital expect D-Mart to add 27 stores in FY20E. "Gross margin rose first time after three consecutive quarter of decline, thereby reflecting that the concern on increase in discounting intensity is not structural (long-term) but temporary," the brokerage firm said with ‘buy’ rating on the stock and target price of Rs 1,604.

“After witnessing a consistent YoY drop in gross margins during the last three quarters, D-Mart posted an expansion in gross margins during Q1FY20. We believe that the same could be due to higher sales of higher margin products like general merchandise and some moderation in discounting during the quarter,” analysts at Antique Stock Broking said in a result review. The brokerage firm recommended ‘buy’ rating on the stock with a target price of Rs 1,656 per share.

At 10:29 am, the stock was trading 6 per cent higher at Rs 1,443 on the BSE, against 0.37 per cent rise in the S&P BSE Sensex. The trading volumes on the counter nearly doubled with a combined 897,756 shares changing hands on the NSE and BSE till the time of writing this report.

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