Why Avenue Supermarts Stock is falling?

Reasons behind recent fall in stock price of Avenue Supermarts

Introduction

In the past 15 days, Avenue Supermarts stock price has plummeted almost 10% from INR 2200 to INR 1970. Avenue Supermarts Ltd. share price has seen a huge downfall yet investors are positive on share price of dmart in near future. In this blog, we will see the reasons behind the fall in Avenue Supermarts share price.

Why Avenue Supermarts is falling?

1. Fully Mature Store closure in Aug’20 at Mira Road

• Avenue Supermarts closed a fully mature store located at Mira Road in Aug’20 and converted it into a dark store, which can be further used as local fulfillment center, from where E-Commerce deliveries can be fulfilled.
• This is for the first time since Avenue Supermart’s IPO that any store is closed.
• The reason behind company’s strategy to turn a fully operational store into dark center is still unknown.
• This has created a room of consciousness and uncertainty among institutional investors about company’s changing strategy.

2. High PE

• Current PE of Avenue Supermarts is 126 x, based on TTM earnings.
• Growth valuations like this do not seem sustainable.
• There is a possibility of sluggishness in the earnings for short term (1-2 quarters) because of the pandemic which led to drastic reduction in footfalls.

3. PE Re rating

• Some of the common examples of PE Re rating in recent past are Page Industries, HDFC AMC, etc where the PE multiple corrected by almost half.
• Earlier there was unavailability of a strong competitor/ peer for Avenue Supermarts. However now a days, with the emergence of Reliance Retail the competition landscape in retailing has changed.
• Reliance Industries is now considered more of a telecom company (Jio) and retailer than an oil company by investors.
• This can be a reason for company’s re-rating.

4. Increasing competition from offline retail stores

• Company is also facing stiff competition from offline retail stores like Reliance Retail, Tata Consumer, etc.
• Earlier, the strong share price of Avenue Supermarts gave it an edge over the retail players like big bazaar.
• But now-a-days, Reliance Retail (reliance Fresh) is trying to erode this pricing power and operate at similar prices.
• Tata Consumer Products being sold at its retail outlets like Star Bazaar can also be one of the potential competitors for the company.

5. Increasing competition from E-Retail

• Currently, Amazon Pantry and Jio-Mart are major players in the Indian E-retail space.
• Increasing pricing competitiveness of these players and preference to E-commerce especially during these times of pandemic will favor E-retailers.
• Amazon Pantry and Jio-Mart already have deep pockets and it will be tough for a new comer like Avenue Supermart’s to overcome this moat.

6. Lock-down Impact on Earnings

• As said before, impact of lock-down will be seen on company’s revenues for next 1-2 quarters.
• There is a risk of change in consumer behavior and its prolonged impact will affect Avenue Supermart which is based on brick & mortar business strategy.

7. Availability of increased free float market capitalization

• Promoter of Avenue Supermart, Mr Radhakrishna Damani, has reduced the holding to 75% in line with the SEBI Norms.
• As a result, free float capital has been available to the public for trading, thus resulting in more shares being available than there are in demand.
• Recently Mr Damani has also invested in other businesses might signal promoter’s deviation from the core business of retailing.

Company Overview:

Avenue Supermarts Limited owns and operates the DMart supermarket chain. The stores sell a large range of products in several categories such as food, personal care, bed and bath, fruits and vegetables, luggage, tableware, clothing, and so on. It’s effectively a one-stop shop for anything you need to buy. DMart has more than 150 outlets around the United States. Avenue Supermarts share prices today came a long way from a listing of Rs. 600 in the year 2017 to above Rs. 4000 in a span of just 5 years.

Listing on NSE, BSE and Indices

The National Stock Exchange of India Limited and the Stock Exchange of Mumbai both trade Avenue Supermarts shares. Avenue supermarts share price NSE stands at 4090.90 as on 14th April, 2022 and Avenue Supermart share price BSE stands at 4090.50 as 14th April, 2022.