Shares of Avenue Supermarts rose as much as 1 percent on Monday after the owner and operator of DMart stores reported its December quarter earnings over the weekend. However, a mixed commentary by brokerage firms is likely to have limited meaningful upside in the stock today.

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At 9:35 am, the stock was trading 0.5 percent higher at Rs 4,730.85 on BSE. The stock has fallen after two days of consecutive gain.

Avenue Supermarts' total revenue stood at Rs 9,065 crore, registering a 22 percent Year-on-Year (YoY) growth in the December quarter, while net profit grew nearly 25 percent YoY to Rs 586 crore.

Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) in

Q3 FY22 stood at Rs 868 crore, as compared to Rs 691 crore in the corresponding quarter of last year. The company's operating margin expanded to 9.6 percent in Q3 FY22 from 9.3 percent in Q3 FY21.

Basic Earnings per share (EPS) for Q3 FY22 stood at Rs 9.04, as compared with Rs 7.26 for Q3 FY21.

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"Overall gross margins are marginally lower due to mix deterioration. General merchandise and apparel business is consistently seeing relatively lesser sales contribution while essentials and FMCG are doing better," said Neville Noronha, CEO & MD, Avenue Supermarts.

He also highlighted that "inflation and lesser opportunities to go out are negatively impacting certain categories more than others. We are seeing

higher inflation as an opportunity to make our buying more efficient, our assortment sharper and continue to keep our costs low".

Here's what the brokerages say:

Jefferies

The brokerage firm said that Avenue Supermarts’ revenue YoY growth of 22 percent in Q3 came in line with estimates while gross margin dipped slightly due to adverse mix. Store additions at 17 were at a multi-year high, Jefferies noted. The brokerage firm has cut EPS estimates by 3-9 percent to factor in COVID related issues. Jefferies has an 'underperform' call on the stock with a target price of Rs 3,800.

Macquarie

The brokerage firm has an ‘outperform’ call with a target price of Rs 5,450. Quarterly profit was below estimate as adverse mix resulted in a miss on the gross margin front, Macquarie noted. However, Avenue Supermarts is better-positioned in an inflationary environment.

UBS

The brokerage firm said Avenue Supermarts had a normalised quarter but sees headwinds ahead. UBS has a ‘sell’ recommendation on shares of the DMart store owner with a target price of Rs 3,500. The foreign brokerage firm sees store disruption and raw material inflation affecting the company’s performance ahead. It pointed out that the scale of the e-commerce business is a key watch out.

Credit Suisse

The brokerage firm has an ‘underperform’ rating on the company’s stock considering extremely stretched valuations, with a target price of Rs 3,600. Credit Suisse cautioned that it sees moderation in growth rate from the online grocery.

Antique Stock Broking

Avenue Supermarts performance Q3 FY22 performance was broadly in-line with estimates, the brokerage firm said. It believes that DMart revenue trends and store addition prints demonstrate the company's ability to quickly revive footfalls with its value offering. Given the uncertainty and pressure on sales of general merchandise, Antique Stock Broking has marginally reduced its EBITDA estimate for FY22 by 2 percent. It retained its 'hold' rating on the stock with a target price of Rs 4,984.

Kotak Institutional Equities

Store addition of 17 surprised on the upside but the brokerage firm has revised down its FY22 revenue and EBITDA estimates by 1 percent and 3 percent respectively to factor in the impact of COVID-related disruptions in Q4 FY22. Kotak Institutional Equities has hiked its target price on the stock to Rs 3,200 from Rs 3,080 but has recommended 'selling' the stock.

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