Avenue Supermarts Locked In 5% Lower Circuit: Here’s Why?

Shares in Avenue Supermarts, owner of retail chain DMart, have been locked in 5% lower circuit at Rs. 2282.45 per share on the BSE on May 26, 2020 even as consolidated net profit at the company on a year on year basis surged 42% to Rs. 271.28 crore. On the NSE, the stock is locked at a 5% lower circuit of Rs. 2278.40.

Avenue Supermarts Locked In 5% Lower Circuit: Here’s Why?

This is because the profitability figure at the firm was outdone by declining margins and management commentary that brought to light the problem Avenue Supermarts' confronted during March in the wake of the nationwide lockdown that was enforced beginning March 25 and remains extended in phases till May 31.

Margins of the company for the Q4FY20 period shrank to 6.67% as against 7.35% reported in the same quarter a year ago.

"Overall revenue grew by 23 percent during the March quarter, however during March month 2020 it grew by just 11 percent over March 2019 due to the lockdown effect of the last 9 days of March this year," Neville Noronha, CEO & Managing Director said.

"Margins have also seen erosion as regulations did not permit us to sell any apparel and general merchandise products," he added.

Further taking in view the current threat to the company's business due to coronavirus, brokerages maintain a negative view on the stock for the near term. Here are the calls of different brokerages on the stock with the target price.

Brokerage	Recommendations	Target price
Credit Suisse	Neutral	Rs. 2150
Kotak Institutional Equities	Sell	Rs. 1480
Motilal Oswal	Sell	Rs. 1900
HDFC Securities	Sell	Rs. 1750
ICICI Securities	Reduce	Rs. 2200
IDBI Capital	Reduce	Rs. 2076

Worth mentioning here that for April month, the company logged 45% decline in its revenue stream as over 50% of its outlets remained shut due to the coronavirus-led lockdown.

Even if the lockdown is lifted, there remains nervousness around consumer spending pattern. And if at all it is visualized as perceived, the problem will only worsen for the supermarket chain.

Further, the stock of Avenue Supermarts is among the few stocks that is known to deliver strong returns to its investors, but the current situation demands investors to stay away from it.

GoodReturns.in