Supermarket chain Avenue Supermarts, which operates the D'Mart brand, on Monday saw its market capitalisation erode around Rs 10,809 crore after its shares tanked over 11% on lower-than-expected third quarter results.
On Saturday, the company reported a marginal rise in net profit for the quarter ended December 2018 to Rs 257 crore, compared to Rs 252 crore in the corresponding period last fiscal. PAT margin during the quarter under review declined to 4.7% compared with 6.1% in the year-ago period. Earnings before interest, tax, depreciation and amortisation (Ebitda) increased 7.5% Rs 453 crore in third quarter of FY19, though Ebitda margin fell 200 bps to 8.3% in the quarter under review as against 10.3% in the corresponding quarter last fiscal.Total revenue, however, increased 33.2% to Rs 5,451 crore during the quarter under review.
Neville Noronha, CEO and managing director, Avenue Supermarts had said PAT growth remained flat primarily due to gross margin reduction on account of price cuts.Shares of D'Mart on Monday hit an intra-day low of Rs 1,386.05 apiece on BSE before recovering slightly and closing at Rs 1,395.75 per scrip, down 11.04% from the previous close. Benchmark Sensex closed 156.28 points, or 0.43% lower to 35853.56.
Post results announcement, a number of brokerage firms cut earnings and price targets. Motilal Oswal Financial Services in a report said D'Mart's margin expansion will be restricted by increased price competitiveness by peers."We expect Ebitda/PAT CAGR of 30%/31% over FY18-21 (FY20 Ebitda estimate raised by 10%, led by the revised growth and margin estimates). However, valuations appear rich at 73x/54x FY20/21E price/earnings (P/E). We, thus, see limited room for re-rating," the report said.
Jefferies India in its report said D'Mart's revenue growth was slightly below while Ebitda and PAT growth came in much below our expectations. Given price cuts by the company, gross margin fall was on expected lines, however, rise in other expenses led to margin disappointment."We marginally cut our revenue estimates by estimated 1%, however on account of lower-than-expected margins we cut our Ebitda for FY19-21E by around 4%. Our earnings per share (EPS) estimates are trimmed by nearly 5% for FY19-21E due to higher interest costs and lower other income. Though D'Mart will be one of the key beneficiaries in the organised grocery retail space, trajectory of earnings growth will taper down vis-a-vis built in valuations keeping risk-reward unfavourable (trading at 46x Ebitda FY20). We roll over to March 2021 Ebitda and cut our target Ebitda multiple to 33x (from 35x earlier)."
Brokerage Prabhudas Lilladher in its report said that it expects profit growth to bounce back from fourth quarter as low base will come into play, although the number of store openings in the fourth quarter will be a key factor to watch out for."We remain positive on D'Mart given strong cluster-based strategy, everyday-low-prices' model and strong balance-sheet. We estimate 34.5% PAT CAGR over FY18-21. However, valuations at 72.8xFY20 EPS of Rs 21.6 and 51.6xFY21 EPS of Rs 30.4 factors in the expected growth," the report said.
IN A NUTSHELL
- 4.7% – decline in PAT margin during the quarter under review compared to 6.1% last year
- 33.2% – rise in total revenue to Rs 5,451 crore during the quarter in review
- 7.5% – increase in Ebitda to in Q3 though Ebitda margin fell to 8.3%
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Post results announcement, a number of brokerage firms cut earnings and price targets. Motilal Oswal Financial Services in a report said D'Mart's margin expansion will be restricted by increased price competitiveness by peers."We expect Ebitda/PAT CAGR of 30%/31% over FY18-21 (FY20 Ebitda estimate raised by 10%, led by the revised growth and margin estimates). However, valuations appear rich at 73x/54x FY20/21E price/earnings (P/E). We, thus, see limited room for re-rating," the report said.
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