Shares of Avenue Supermarts fell 3.6 per cent on Monday after the company missed net profit estimate for the March quarter on higher depreciation, interest and taxation costs. Analysts are now less bullish on profitability due to the company’s aggressive expansion plans.

After making a footprint in western India, the company is expanding its presence in southern and central India. In Q4, the company added 14 stores compared to just seven in the nine months ended December 31.

“Continued strength in sales (FY17 same-store-sales growth at 21 per cent) reaffirms DMart’s strengths in the underpenetrated grocery retailing industry. Sustaining such growth is likely to be difficult as DMart increases in size, competition rises from new players (relaxation of FDI regulations) or online peers (last-mile costs reduce),” said IIFL in a post results note.

While aggressive store additions will help notch up robust sales growth, like-for-like (LFL) growth — a more important parameter for a retail company — is under pressure.

LFL sees consistent fall

Avenue reported robust sales growth of 41 per cent and 39 per cent in the March 2017 quarter and FY17, respectively. However, LFL growth has been coming down consistently for the past five financial years ending March 31.

LFL here indicates growth in revenue from sales at stores which have been operational for at least 24 months at the end of fiscal year.

Amid theses concerns, analysts find limited upside triggers on the stock, which is trading at an expensive valuation of 56 times FY19 estimated earnings. The stock had made a stellar debut with closing gains of 114 per cent on March 21 and has gained 160 per cent since listing. Announcement of financial performance for March 2017 quarter has been the first after the company got listed in March.

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