JOIN USDMart owner's stock tumbles 8% on valuation worries
Shares of India's Avenue Supermarts slipped 8 per cent on Monday after briefly hitting a record high, as investor concerns about valuation eclipsed a surge in quarterly profit.
Avenue Supermarts, which owns and operates D-Mart stores in India, reported a 110 per cent surge in consolidated net profit for the September quarter, as easing Covid-19 restrictions attracted more shoppers and boosted revenue by 47 per cent. The Mumbai-headquartered company added eight stores during the quarter.
Earlier in the session, the stock rose 10.8 per cent to a record high of Rs 5,900.
However, it gave up gains and was trading 8 per cent lower by 1230 IST as several brokerages flagged limitations to the stock's upside due to high valuation.
"While we continue to believe Avenue Supermarts is best placed to play the unorganised to organised shift in grocery vertical and believe it has best in industry business model, steep run-up in stock price leave little room for upside and hence we wait for better entry points," PhillipCapital said in a note.
Jefferies, which raised its target price on the stock to Rs 3,700 from Rs 2,300, also flagged that a sharp rally in share price remains a challenge.
Shares of Avenue Supermarts are up roughly 22 per cent this year, compared with a 13.5 per cent gain in 2020. Of the nine months so far in 2021, it has reported solid gains for six.
The stock trades at a record price-to-earnings ratio of around 165 times forward earnings estimates, according to Refinitiv data as of Thursday's close, making it the ninth most expensive stock in the Indian market.
Around 3.4 million shares changed hands on Monday, compared with 30-day average of around 499,700 shares.
Seven of 28 analysts covering stock have "buy" or "strong buy" rating, 7 have "hold" while 14 rate it at "sell" or "strong sell"; median PT is Rs 3,650, according to Refinitiv data.
Check out latest DH videos here