Mumbai: Five months after going public, Avenue Supermarts Ltd continues its dream run on the markets, but concerns over its rich valuations are rising as well.
Avenue Supermarts, which owns the D-Mart retail chain founded by ace investor Radhakishan Damani, has been a market darling since its listing. Its shares have soared 230% from its issue price, with the stock touching a record Rs999 on Wednesday. The stock has gained steadily since listing on 21 March.
On the day of its listing, the Avenue Supermarts stock had risen 114.30% from its offer price of Rs299. Its market capitalization has touched Rs61,731.32 crore, up 54.37% from Rs39988.21 crore when it listed.
The company’s market value is now higher than that of 13 Nifty companies like Tata Steel Ltd, Ambuja Cements Ltd, Indiabulls Housing Finance Ltd, Hindalco Industries Ltd, Zee Entertainment Enterprises Ltd, Cipla Ltd, Tech Mahindra Ltd, Lupin Ltd, Aurobindo Pharma Ltd, ACC Ltd, Bank of Baroda, Dr Reddy’s Laboratories and Tata Power Co Ltd.
However, its rich valuations are worrying analysts. Himanshu Nayyar, research analyst at Systematix Shares & Stocks (I) Ltd finds current valuations pricing in all visible positives, with no room for any disappointments. “Although we like the business model and believe it is a very scalable opportunity run by an efficient management, current valuations look stretched. Given the low free float and lack of alternatives, we do not see a sharp correction and expect the stock to remain expensive," he said.
According to Dilip Bhat, joint managing director at brokerage Prabhudas Lilladher Ltd, investors are ready to pay a premium for Avenue Supermarts, although it is one of the most expensive stocks. “The company is expected to report bottomline at 20-30% compound annual growth rate (CAGR) in three to five years. Its return-on-equity (ROE) is also likely to increase. It is run by the best management with high integrity," he added.
Net profit of Avenue Supermarts jumped 47.5% year-on-year to Rs174.77 crore in the April-June quarter while its total revenue improved 36.2% year-on-year to Rs3,620.95 crore.
The initial public offer (IPO) of Avenue Supermarts was subscribed around 104 times and it has raised nearly Rs1,870 crore through the issue. On Wednesday, the stock closed at Rs989.15, up 3.4% on the BSE.