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Avenue Supermarts’ margin fall worries investors, expect 4-5% near-term correction: Edelweiss

Updated : July 12, 2021 10:17:17 IST

Abneesh Roy, executive vice president of institutional equities at Edelweiss Securities, believes that Avenue Supermarts (DMart) is a good long-term compounding story.

Avenue Supermarts, which owns and operates DMart stores reported disappointing earnings for the June-ended quarter. Revenue is in line but there is a miss on the profit after tax and margin front.

Speaking in an interview with CNBC-TV18, Roy said, “Currently, they (Avenue Supermarts) are present in the same cities as earlier but they will be expanding more in these cities. So near-term, some correction, but long-term this remains a good compounding story in the consumption. However, in one year, I would expect Jubilant Foodworks and Titan to see faster recovery.”

Roy also added that it might be pertinent for investors to know if Avenue Supermarts’ gross margin fell due to higher sales of essentials. Roy also believes that the company opening up 24 stores in the last four quarters will aid its numbers, going ahead.

On numbers, he said, “We expect 4-5 percent correction in the near-term. The street would be looking for answers as to why gross margins were low in terms of multi-quarter. There could be concerns whether the discounting war from the e-commerce players are going up.”

According to him, the digital space is heating up with Tatas buying BigBasket. “Tatas have a good understanding of retail in multiple formats and also have a very credible and large financial backup. Similarly, Grofers, an online grocery delivery service, has not partnered with Zomato. Jio (JioMart) continues to remain extremely aggressive and Amazon and Flipkart have a reasonable presence.”

Disclosure: Reliance Industries, the parent company of Reliance Jio, owns Network 18 that publishes CNBCTV18.com.

For the entire interview, watch the video.
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