Credit Suisse upgraded its rating to neutral from underperform and also raised price target to Rs 1,330 from Rs 1,175
Shares of D-Mart operator Avenue Supermarts rallied 6 percent intraday on July 15 after reporting healthy growth in June quarter earnings.
The company reported double-digit growth in its bottomline as well as topline. Consolidated profit in Q1 grew 31.87 percent to Rs 323.09 crore and revenue from operations increased 27 percent to Rs 5,814.6 crore in June quarter compared to the corresponding period of the last fiscal.
At the operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) saw a whopping 41 percent year-on-year increase at Rs 596.8 crore in Q1, but margin contracted to 9.74 percent during the quarter, compared to 10.81 percent in the same period last year.
The margin was dented by a significant rise in total expenses (up 26.4 percent YoY) including finance cost (up 81 percent) and depreciation & amortisation expenses (up 90.4 percent).
The stock was quoting at Rs 1,418.40, up Rs 59.20, or 4.36 percent on the BSE at 0958 hours IST. It has rallied 8 percent in last one month.
Global brokerage houses turned mixed on the stock after earnings, with Credit Suisse upgrading its rating to neutral from underperform. It also raised price target to Rs 1,330 from Rs 1,175.
The stock underperformed in past one year as concerns on margin dilution played out, the brokerage said. Credit Suisse sees company's margin concern abating and hence it has lifted FY20/FY21 earnings estimates by 2-4 percent.
Morgan Stanley, however, is bearish on Avenue Supermarts and has an underweight call on the stock with a target price at Rs 1,120. It said changing retail landscape will have implications for Avenue's revenue growth and margin, and increased price competition may blunt company's first-mover advantage.
The brokerage feels sustainability of margin expansion trend is key to stock performance.
Earning is 9.6 percent ahead of its estimate due to 70 bps YoY improvement in operating profit margin, Morgan Stanley said, adding gross margin expansion of 50 bps YoY is the key positive.
Based on its estimates, same-store-sales growth for the quarter is 11-12 percent.Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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