Avenue Supermarts Limited, Hold, Or Sell?


Avenue Supermarts Limited is an Indian chain of hypermarkets in India founded by Radhakishan Damani in the year 2002.

As of 31 December 2019, it had 196 stores in 72 cities across 11 states in India.

The stock has given phenomenal returns since it was listed in the stock markets.

From 300 INR as IPO subscription price to 3000 INR now, the stock has made many investors wealthy.

In this blog we will discuss whether fresh entry into the stock can be taken and what should the existing investors do.

Is it the right time for a fresh entry?

Currently, the stock is trading at a P/E ratio of 200. Such high P/E suggests very expensive valuations.

The company has around 12-13% market share in the retail chain stores, and the corporate governance of the company is also good.

Foreign institutional investors are heavily invested in this stock, and the company also depicts good earning capabilities.

Even if all things are looking good, valuations are very high for the stock.

Entering at 200 P/E opens room for a bigger drawdown too in case the company disappoints in one or two quarters or if negative news comes.

Protection of capital is really important, so entering at such a high P/E is not advisable.

What should the existing investors do?

If someone has invested in the company since IPO, the stock is nearly 5 times that price now.

It has never disappointed in any quarter since then, and the markets expect this to continue.

The company has performed well with a 40-45 % CAGR of the profits.

But if we look at the share price, it has moved from 300 to 3000 which is an 85% CAGR. Since the share prices are running very fast as compared to the profits growth, investors should be ready for a correction.

A person, who has invested in the stock for the long term should not get excited and book the profits now.

As the stock can move further up. Exiting and then again entering with a view to enter at better prices and time the markets is a bad step for our own psychology.

If we have invested in the stock by analyzing its underlying business and financials, we should stick to it until these factors change.

Written By-
Samarth Pandey