Very few companies — even those with strong economic moats — manage to register growth of more than 20% each year. But Avenue Supermarts, which runs DMart, is truly an outlier. It continues to clock impressive performance. Net sales and profit growth of 24.36% and 40.39%, respectively, in the first half of FY20 reflects that the company has been immune to the consumption slowdown in the country. A combination of everyday discount strategy and a lean business model has helped the company to clock stellar numbers in each quarter. No surprises then that analysts and investors continue to regard the stock as a favourite in this space. “DMart remains our key consumer pick - we remain bullish on what we believe to be a best-in-class cashflow-backed earning-compounder,” states a JM Financial report. This optimism in the market has led to a stellar rally in the stock, which has gained a whopping 177% since listing in 2017. While the stock currently trades at Rs.1,780, JM Financial has a target of Rs.2,070.
Their analysts also believe that the corporate tax cut will act as a tailwind “which would drive the rate of net profit growth 2x higher vs PBT growth rate in the current fiscal.” The report adds that DMart wouldn’t mind sharing this windfall with customers to drive higher store throughput and “further strengthen the sustainability of its value-creation model — one based on solid customer loyalty rather than one-off gains.”
Mutual funds and foreign investors also remain bullish. While MFs have increased their stake from 2.94% to 4.26% over the past two quarters, FPIs have upped it from 5.91% to 6.03%. Axis Mutual Fund, which is the largest MF in the stocks has increased its stake from 2.01% to 2.55%.
As the stock trades near its all-time high, Neville Noronha, CEO of Avenue Supermarts, is cashing in. He sold shares worth Rs.514 million in two tranches on December 10 and 11. After the latest selling, his holding has dropped from 2.15% to 2.10%, which is still worth Rs.24 billion. Since the listing, Noronha has sold stock worth Rs.1.55 billion. In the month of December, the management and employees of DMart have sold shares worth Rs.764 million. Apart from Noronha, the other prominent seller is CFO Ramakant Baheti, who has sold stock worth Rs.225 million.