On Monday, Avenue Supermarts, which operates under the ticker DMART:IN, had its price target increased to INR 3,900 from INR 3,800 by a Kotak analyst while the sell rating was maintained. The adjustment comes in response to the company's reported first-quarter revenue growth for the fiscal year 2025.
Avenue Supermarts experienced a year-over-year revenue increase of 18.4%, primarily driven by a 14.4% expansion in retail space and a 4.2% rise in average throughput. Gross margin (GM) for the quarter was reported at 15.6%, slightly higher than the 15.4% anticipated by Kotak Institutional Equities and the 15.2% from the same quarter of the previous fiscal year.
This improvement was attributed to a favorable mix of general merchandise and apparel (GM&A) sales, which typically see higher throughput and margins in this season.
Despite the higher gross margin, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin remained unchanged year-over-year at 8.7%. This was due to increased operating expenses which offset the gains from gross margins. The Kotak analyst has made slight adjustments to the earnings per share (EPS) forecasts for fiscal years 2025 to 2027.
The new fair value (FV) of INR 3,900 is a result of a roll-forward valuation method, which takes into account the latest financial projections. Despite the increased price target, the firm's stance on Avenue Supermarts remains a sell, suggesting that the analyst believes the stock may not perform as well as other investments.
InvestingPro Insights
As Avenue Supermarts continues to expand its retail footprint and shows robust revenue growth, it’s important for investors to consider various financial metrics and expert analyses. According to the latest data from InvestingPro, Avenue Supermarts, known by its ticker AVEU, is trading at a high earnings multiple, which could signal that the stock is priced optimistically relative to its earnings potential. This aligns with the Kotak analyst's decision to maintain a sell rating despite the increased price target.
An InvestingPro Tip highlights that Avenue Supermarts is trading at a high Price-to-Earnings (P/E) ratio relative to near-term earnings growth. This suggests that the market has high expectations for the company's future profitability, which may already be reflected in the current stock price. Additionally, Avenue Supermarts is recognized as a prominent player in the Consumer Staples Distribution & Retail industry, which could be a contributing factor to its current valuation.
InvestingPro Data metrics reveal that the company has been profitable over the last twelve months, indicating a solid track record. Furthermore, its cash flows can sufficiently cover interest payments, suggesting financial stability. With a moderate level of debt, Avenue Supermarts appears to be managing its leverage responsibly.
For a deeper dive into Avenue Supermarts' financial health and future prospects, investors can access additional insights by visiting InvestingPro. There are 15 additional InvestingPro Tips available that offer a comprehensive analysis of the company's performance and valuation. To enhance your investment research, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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