Avenue Supermarts Hits Record High. Marketcap Tops Rs 2.75 Lakh Crore

This stock of Avenue Supermarts, the operator of DMart chain, is rising rapidly.

As Indian share markets are scaling new peaks every other day lately, same is the case for Avenue Supermarts. The company is now the 16th largest in India in terms of marketcap.

It recently surpassed Bajaj Finserv, Axis Bank, and UltraTech Cement.

Top Indian Companies by Marketcap

Factors Aiding the Rally

Despite near term challenges, Dmart shares have stayed resilient and scaled new highs.

In the wake of second wave, Dmart stores were not only restricted as to how many hours they could stay open, but also mandated to sell only essential supplies.

The company's June 2021 quarter numbers were impressive even though the quarter was marred by lockdowns and disruptions.

Avenue Supermarts has witnessed strong growth in sales and profits. Between fiscal 2009 and fiscal 2020, its topline and bottomline have grown by double-digit figures.

DMart's presence is still nascent at approximately 238 stores. This number will continue to rise over the coming years.

This trajectory in the store addition is the main reason why many brokerages are bullish on the stock.

Currently, Dmart has its online shopping and pick-up counter business in five cities. It's planning to expand that to two to three more cities by the end of fiscal 2022.

The company also has robust liquidity position and healthy operating cashflows, which in turn will help in the pace of expansion. DMart intends to open 37 offline stores this year to make up for the tepid store opening in fiscal 2021 which stood at 22.

This week, the company opened a new store at Faridabad, Haryana, which is its second one in Delhi-NCR. Built on a plot size of 1.57 acre, the store in Sector 75 comprises three floors with a total built up area of 94,000 square feet.

It must be noted that DMart is very cautious with its online expansion strategy and only targets metro cities.

Another positive for the company is the increasing scale and scope of DMart Ready. The company continues to extend offerings on DMart ready app. DMart's everyday low value focus gives it an edge.

Once the hours are back to normalcy and store expansion is on track post lockdown related restrictions, volumes will increase.

A month ago, a report stated that Avenue Supermart and Info Edge shares could be included in the benchmark NSE Nifty index in the forthcoming semi-annual index rebalancing.

For semi-annual index review, rebalancing contenders are picked on the basis of their average marketcap in the previous six months among a host of other factors.

DMart makes the cut but falls short of requirements for not being part of derivatives. The stock has been qualifying for derivative inclusion from last couple of quarters, but the final call of F&O inclusion is in the discretion of markets regulator.

Key concerns

The key concern for Avenue Supermarts is its expensive valuation.

Here's what Rahul Shah, Co-head of Research at Equitymaster, wrote about the company's valuation back in March 2021.

• Avenue Supermarts, the company that owns the DMart chain of stores, is not cheap by any stretch of imagination.
  
  Based on its all-time high EPS of Rs 20 that it earned in FY20, the stock is trading at a price to earnings multiple of a whopping 150x.
  
  That's huge.
  
  There aren't many investors who've earned 100x their investments by paying a starting multiple of 150x. This is irrespective of how great or how fast growing the company.
  
  Besides, there's always the chance the high growth rate of 28% the analyst seems to be projecting, comes unstuck.
  
  After all, competition not just within its own space, but even of the digital kind, seems to be breathing down its neck.
  
  Thus, there could well be a double whammy in the form of the bottomline growing at a lower than projected rate.

You can read Rahul's entire article on this topic here: Is DMart Really a BAAP Stock and a future 100-Bagger?

Adding to concerns is the risk it faces due to a moderation in growth owing to strong traction for online retailers once the dust clears. Players like Amazon and Reliance Retail are present in this space.

Inflation also poses a threat. The bill value is expected to remain higher than pre-covid levels due to the inflationary environment.

Stock performance

Shares of Avenue Supermarts have almost turned into a multibagger in the past one year.

Yesterday, even as markets erased gains and ended lower, Avenue Supermarts gained over 4% to touch a new 52-week high of Rs 4,293.75. It settled higher by 3.9% at Rs 4,242.

Since its listing back in March 2017, Dmart shares have gained more than five-fold.

This spectacular rally in the company's shares have made Navil Noronha, the CEO of DMart, India's richest CEO.

As of June 2021, the company promoters, i.e. Radhakishan Damani held 74.99% stake, while FIIs held 10.04%.

To know more, check out Avenue Supermarts' latest shareholding pattern.

About Avenue Supermarts

Avenue Supermarts is engaged in the organised retail business through its DMart chain of stores. The company was incorporated in 2000 and is promoted by Mr Radhakishan Damani.

Align Retail Trades Pvt (ARTPL) procures grocery items, including pulses, rice, wheat, vegetables, and fruits from local agricultural produce market committees, package these, and supplies to Avenue Supermarts.

Avenue Supermarts derives more than half of the revenue from food segment, 20% from FMCG and the remaining from general merchandise and apparel segment.

Back in February 2020, Avenue Supermarts raised Rs 41 bn via QIP at an issue price of Rs 2,049.

To know more, check out Avenue Supermarts company fact sheet and quarterly results.

For a sector overview, read our retailing sector report.

You can also compare Avenue Supermarts with its peers.

Avenue Supermarts vs V-Mart Retail

Avenue Supermarts vs Shoppers Stop

Avenue Supermarts vs Future Retail

Here are Links to Some Very Insightful Equitymaster Articles on DMart:

• What Was I Thinking When I Valued DMart?
• Do Margins Matter? The Curious Case of DMart
• The 'Multibagger IPOs' You Should Be Betting On

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...