Radhakishan Damani’s DMart says Q4 revenue strong, warns of lockdown deja-vu; should you buy shares?

During the last quarter, Avenue Supermarts continued to grow strongly. Its revenue from operations was 2% ahead of what analysts at Global brokerage and research firm Goldman Sachs had estimated.
(image: REUTERS)

Radhakishan Damani’s Avenue Supermarts, the company that runs the DMart hypermarket chain, last week said that its standalone revenue from operations was Rs 7,303 crore for the January-March quarter, up 18% on-year basis. However, along with the positive business update, the company also said that with increasing coronavirus cases its business will continue to be dependent on how the pandemic treads. Currently shares of the firm trade at Rs 2,830 a piece, down from their March 2021 highs of Rs 3,286 per share.

Lockdown deja-vu may hit next quarter earnings

The company has sounded an alarm of caution over the increasing coronavirus cases. “Due to increased Covid-19 cases since March 2021, several restrictions have been put in place in certain cities and towns where we operate. The number of cities and stricter enforcements keep growing every day,” Avenue Supermarts said in the update. The company expects the situation to remain the same at least till the end of April. 

“Our business will continue to be dependent on how the pandemic trends further and the consequent restrictions for operating our stores,” they added. The business has been hit owing to restrictions varying from region to region, stores closing on certain days to abrupt shutdowns for a continuous week or more.

Strong revenue growth

During the last quarter, Avenue Supermarts continued to grow strongly. Its revenue from operations was 2% ahead of what analysts at Global brokerage and research firm Goldman Sachs had estimated. Further Avenue Supermarts added 13 more store locations during the quarter, which is again more than what analysts at Goldman Sachs had predicted. The brokerage firm said that the strong fourth-quarter revenue and store addition demonstrate Avenue Supermart’s ability to drive consumer footfalls due to attractive price positioning compared to other online and offline peers. Additional, they said that the widening E-commerce reach of Avenue Supermarts also offsets the loss of offline sales. 

Avenue Supermarts said that stores older than 2 years saw 6% growth for the months of January-February 2021 compared to the same period last year. The second wave of the coronavirus has also attempted to clamp down on the recovery. “These stores saw a negative growth of 9.4% for the first 15 days of March 2021 as compared to the first 15 days of March 2020,” they added. However, in the second half of March 2021, the figures rebounded owing to a low base effect. 

Still a ‘Buy’ call

Although Goldman Sachs still remains confident about the stock but the business update provided by Avenue Supermarts, has forced the brokerage firm to change its estimates. “We incorporate higher Januar-March quarter revenues and the negative impact of the lockdown in the first quarter of FY22 in our model and change our FY21E-29E EPS estimates by +1 to -11%. On our revisions, our 12-month target price goes to Rs 3,290 (from Rs 3,472; -5%),” analysts at Goldman Sachs wrote. Higher-than-expected competition, higher-than-expected losses in online business and higher-than-expected disruptions due to COVID-19 related lockdown measures are some of the risks that Goldman Sachs sess aligned with Avenue Supermarts.

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