Avenue Supermarts’ board, in May 2019, had approved issuance of 25 million shares through qualified institutional placement (QIP). This will reduce promoter’s stake to 75 per cent in adherence to SEBI rule of achieving minimum public shareholding by 20th March, 2020. Currently, the promoters holding 79.73 per cent stake in the company.
Meanwhile, the stock has outperformed the Sensex by surging 12 per cent from its recent low of Rs 1,790 on January 6, after the company reported a 53.3 per cent year-on-year rise in net profit at Rs 394 crore for the quarter ended December 31, 2019 (Q3), beating Street estimates. The benchmark index was up less than 1 per cent during the same period.
The growth was driven in part by a lower corporate tax rate, as well as higher revenue and operating income. Net sales for the period grew nearly 24 per cent to Rs 6,752 crore, amid weak consumer sentiment. Earnings before interest, tax, depreciation and amortization (EBITDA) margins in Q3 came in at 8.8 per cent, which was a growth of 50 basis points over the year-ago period.
The company’s focus on Everyday low cost - Everyday low price (EDLC/EDLP) concept, efficient inventory management and ramping up of its online strategy supported by healthy liquidity position provides it a competitive advantage over its peers in the long run.
Analysts at KR Choksey Shares and Securities expect Avenue Supermarts to continue its double-digit top-line growth of 25.3 per cent/26.0 per cent in FY20E/FY21E, supported by retail addition through store expansion (average 20 new stores addition per year) over FY19-21E.
"In our view, the shares justify the premium due to accelerated store additions, traction in E-Com business (Dmart Ready). The recent cut in corporate tax rate will be positive for the company leading to cash generation which is likely to be passed on to consumers through price cuts and also support expansion considering the heavy capex nature of its business," the brokerage firm said in result update.
“DMart delivered another strong quarter in a consumption slowdown context, albeit with an inline but a decelerating revenue growth print. High capex and moderating revenue growth could crimp return ratios and compress the stretched valuation multiples,” analysts at Motilal Oswal Securities said in results update.