Avenue Supermarts Ltd. has been popular among investors since the time it filed for its IPO. It is the parent company of DMart, which is among the most profitable food and grocery retail chains in India.
The stock was issued at a price of ₹ 299 in the year 2017 and rose to ₹ 615 levels soon after its listing, indicating a premium of nearly 106 percent, and delivering multibagger returns. Since then, its share price has mostly indicated an uptrend, as it rose to an all-time high of ₹ 5,899.90 apiece in October 2021. However, it has been almost two years now, but the company’s share price hasn’t been able to reach that mark again. In fact, it has declined by nearly 18 percent in the past year.
Meanwhile, Tata group-owned retailer Trent Ltd has been gaining attention on the bourses. It has seen a valuation re-rating led by a big rally in its share price. The company’s shares have gained nearly 47 percent in the past year. It is engaged in retailing apparel, footwear, accessories, toys, games, food, grocery & non-food products through various of its retail formats/ concepts.
At 03:00 PM on Thursday, Trent’s shares were trading at ₹ 2046.35 and DMart’s shares were trading at ₹ 3743.95 apiece. Trent was trading at a price-to-book value (P/B) of 28.25 times (x), nearly double that of Avenue Supermarts’ P/B ratio of 15.11x. Similarly, Trent is valued at a trailing price-to-earnings multiple of 150.34 x, nearly 50 per cent higher than Avenue Supermarts’ 101.49 x.
Avenue Supermart continues to make more revenue and profits as compared to Trent, however, Trent’s revenue and profit are growing at a faster pace as compared to DMart in recent years. In fact, Trent beats Avenue Supermarts in three-year compounded annual growth rate (CAGR) in revenues and earnings as well.
Trent’s revenue came in at ₹ 8,242 crores in FY 2022-23, up 83 percent as compared to ₹ 4,498 crores in FY 2021-22. Its net profit grew by 320.19 percent to ₹ 444.69 crores in FY 2022-23, compared to ₹ 105.83 crores in FY 2021-22.
Avenue Supermarts’ revenue came in at ₹ 42,840.00 crores in FY 2022-23, up 38.30 percent as compared to ₹ 30,976.00 crores in FY 2021-22. Its net profit grew by 59.34 percent to ₹ 2,379.00 crores in FY 2022-23, compared to ₹ 1,493.00 crores in FY 2021-22.
Trent gets most of its revenues from Westside and Zudio chain of fashion and lifestyle stores. It is present in groceries through the Star Market chain of hypermarkets, which is still a small part of its overall business. In contrast, Avenue Supermarts’ DMart chain of supermarkets, derives most of its revenue from grocery sales.
Analysts attribute Trent’s outperformance to the success of Zudio’s franchise, which has emerged as one of the biggest value-for-money fashion formats in India.
“Aggressive franchising of Zudio may drive improvement in return ratios,” according to a recent report by ICICI Securities.
On the other hand, Avenue Supermarts is suffering from a slowdown in discretionary spending, discretionary consumer demand and margin contraction in its core grocery retailing business. Analysts note that despite Trent’s recent success, its earnings growth remains volatile, whereas Avenue Supermarts’ finances are far steadier.
Written by Simran Bafna
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