Avenue Supermarts hits over two-month low; stock down 8% in a week

Shares of Avenue Supermarts, owner of the DMart brand, were trading lower for the fifth straight day and dipped 2 per cent at Rs 1,701 on Wednesday to hit 12-week low on the BSE. The stock was trading at its lowest level since September 20, 2019. In past one week, it has fallen 8 per cent, as compared to 1 per cent decline in the S&P BSE Sensex.

According to a Bloomberg report, Bank of America Corp and Kotak Mahindra Capital Co are among banks Indian billionaire Radhakishan Damani has picked for another planned stake sale in Avenue Supermarts.

Damani, who sold about 1 per cent earlier this year, has to sell more shares before the end of March to meet a minimum requirement for public float, the report said quoting people with knowledge of the matter.

On August 9, 2019, Damani had sold 4 million shares, representing 0.64 per cent stake in Avenue Supermarts for about Rs 562 crore. The promoter sold these shares at price of Rs 1,404.10 per share, BSE bulk deal data shows.

The stock has underperformed the market by falling 15 per cent since October 31 when it hit its 52-week high. In comparison, the benchmark Sensex was up 1 per cent during the same period.

For July-September quarter (Q2FY20), Avenue Supermarts reported 22 per cent year on year growth in revenues at Rs 5,950 crore. The revenue growth was the slowest since DMart's listing despite healthy addition of 25 stores (13 per cent growth) in the last nine months, which indicates slower same-store-sales-growth (SSSG), according to analysts at Motilal Oswal Securities.

Since customers are perfectly disloyal in a perfectly-competitive market, analysts at IDBI Capital expect rational-customers to move away from DMart to Grofers which is offering best-of-price and best-of-convenience.

In the long-term, the brokerage firm believes best-of-convenience would not free-of-cost, hence customers would be relatively OK with lower discount; in near term as long as cash-burn-led discounting is rampant, expect DMart to be under margin/revenue pressure, it added. The stock however, trading below brokerage 12-month target price of Rs 1,838 per share.

Kotak Mahindra Group