INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: Improving cash profits and a weak property market are twin tailwinds for Avenue Supermarts to step up its expansion
of stores reaching maturity, the company will need to intensify its rate of store addition.
In the first nine months of FY20, it added 20
stores taking its total count to 196 at the end of 2019 and the last quarter is usually the quarter where it adds maximum stores
In the previous fiscal, it added only nine stores in the first nine months and 12 in the last quarter
To sustain a high growth run rate, stores would have to be added faster
Most of the stores are owned by the company
The promoter recently bought an 8.8-acre land parcel for 500 crore in Borivali, a suburb in Mumbai.
In the December quarter, it reported
year-on-year revenue growth of 24.4 per cent and operating profit growth of 33 per cent to Rs 6,809 crore and Rs 597 crore respectively
This was in line with broad expectations
Operating profit margins jumped 600 basis points to 8.8 per cent, marginally below estimates
But thanks to the downward revision in the corporate tax rates,its net profit grew by 55.4 per cent to Rs 384 crore,
Adjusting for depreciation, the retailer made Rs 480-crore cash profit in the quarter.
At this rate, the company may have a significant cash
balance by the end of FY20, with negligible or no net debt
It will be interesting to see how the company will utilise this cash
Keeping high cash on the balance sheet may lower the return on equity ratio and impact the valuation multiples.
At the current price of Rs
1,877, the stock is trading at 85 times annualised earnings
The high valuations factor in the current rate of growth and the stock may consolidate at present levels.
