Home / Markets / Mark To Market /  Why investors are shopping for Avenue Supermarts’ stock

Shares of Avenue Supermarts Ltd rose as much as 6% on Monday. Not without reason. The financial year has begun on a good note for the retailer operating the DMart supermarket store chain. On the margin front, June quarter financial results, announced on Saturday, have brought cheer.

The company’s Ebitda margin expanded, after three consecutive quarters, soothing investor anxiety around margin pressure. For the June quarter, Ebitda margin increased 104 basis points over the same period last year to 10.3%. Ebitda is earnings before interest, tax, depreciation and amortisation and a key measure of profitability. One basis point is one-hundredth of a percentage point.

Avenue Supermarts’ Q1FY2020 result allays consensus concern of margin pressure in the face of competition from both online and offline grocery retailers," said brokerage firm ICICI Securities Ltd. According to the broker, Ebitda margin, even after adjusting for Ind-AS 116 impact, expanded 70 basis points year-on-year to 10%, which is the second-highest in 13 quarters.

Of course, investors will watch hereon whether the trend sustains, though the company has maintained that margins of the first quarter were not typically a reflection of the entire year. “Gross margin was slightly ahead of our expectations and our continued operational efficiency has resulted in higher profit after tax margins," said Avenue Supermarts.

Monday’s jump in share price, makes already expensive valuations, even pricier. Avenue Supermarts’ shares currently trade at a whopping 74 times estimated earnings for financial year 2020, making it one of the most expensive stocks in India’s retail universe.


Pallavi Pengonda

Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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