Motilal Oswal is bearish on Avenue Supermarts has recommended sell rating on the stock with a target price of Rs 1400 in its research report dated January 13, 2019.
Motilal Oswal's research report on Avenue Supermarts
Revenue grew robustly by 33% YoY to INR54.5b (in-line) in 3QFY19. However, the company continued facing margin pressure (gross margin down 170bp YoY to 14.7% off a high base), mainly due to its focus on price competitiveness. Consequently, EBITDA increased by a modest 7.5% YoY to INR4.5b (5% miss), with the margin contracting 200bp YoY to 8.3%. PAT, too, grew by a marginal 2.1% YoY (8% miss) to INR2.6b due to lower other income (-37% YoY) and higher depreciation/finance cost (+33%/36% YoY).
However, valuations appear rich at 73x/54x FY20/21E P/E. We, thus, see limited room for re-rating. Maintain Sell with a TP of INR1,400 (prior: INR1,285), ascribing 65x P/E on FY20E (on the back of strong competitive moat).
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