Shares of DMart owner Avenue Supermarts fall 6% on weak Q1 performance

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MUMBAI: Shares of Avenue Supermarts, which owns and operates retail chain DMart, fell 6.04% after it reported 88% drop in its consolidated net profit for the quarter ending 30 June, 2020.

At 11:15 am, Avenue Supermarts was trading at 2,233.55 down 3.82% from its previous close, while the benchmark index, Sensex gained 0.62% to 36822.87.

The company cited Covid-19 for its net profit decreasing to 40 crore as against 323 crore in the year-ago period. The company’s consolidated total income fell 32% to 3,933 crore as against 5,826 crore in June 2019.

Commenting on the financial performance of the company Neville Noronha, CEO & Managing Director, Avenue Supermarts Ltd, said: “Covid-19 continued to spread across the country. The ensuing restrictions have had a significant impact on our operational and financial performance in the quarter. Our revenue, EBITDA and profit for the quarter were significantly lower as compared to the same quarter last year.”

Earnings before interest, tax, depreciation and amortization (EBITDA) in Q1 FY21 stood at 112 crore, as compared to 597 crore in the corresponding quarter of last year. EBITDA margin stood at 2.9% in Q1 FY21 as compared to 10.3% in Q1 FY20.

Analysts at Motilal Oswal in a result note said, “Unlike other format stores, grocery retailers catering to essentials are seeing a lower impact of the lockdown as it caters to a large proportion of low-ticket items. The company’s equity funding of 4,000 in the preceding quarter strengthened the balance sheet with net cash position, enhancing liquidity in such uncertain times. D-Mart is trading FY2022E EV/ EBITDA multiple of 42 times, maintaining target price of 2,000, 20% discount to the three-year average EV/EBITDA multiple of 53 times”. The brokerage has a sell rating on the stock.

“Wherever stores were allowed to operate unhindered, we recovered to 80% or more of pre-covid sales in most stores. Discretionary consumption continues to be under pressure, especially in the non-FMCG categories. This is impacting gross margins negatively,” said Noronha.

From the beginning of the year, Avenue Supermarts was up 22% against a drop of 11% in the benchmark index, Sensex. For the June quarter, the stock gained 5.33% while Sensex was up 19%.

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