Stocks to buy: This stock is holding up amid the gloom! Can this be a good bet?

Mumbai: While strong volatility has become the new norm for the broader market, with risk off the table, this stock is holding up.

It, too, has taken a battering, but is still in the gains on a year-to-date basis, while the benchmark Sensex has tumbled more than 35 per cent for this period.

The stock is Avenue Supermarts, the parent of retail grocery chain D-Mart. The stock is up 8.74 per cent for the year at Rs 1,998, and has delivered 35.3 per cent gains for last one year. Sensex, in contrast, is down 22.1 per cent on a one-year basis.

To be sure, the market correction not spared the stock completely. It is down 22 per cent from its record high of Rs 2,559. But from its August 2017 IPO price of Rs 299, the stock has jumped 568 per cent so far, making it one of the best debutants in recent years.

The stock currently has four strong ‘buy’, six ‘buy, 4 ‘hold’, 6 ‘sell’ and ‘strong sell’ ratings on the publicly available Reuters Eikon database.

As many as 503 foreign investors held a total of 7.99 per cent stake in the company as of December end, data from Marketsmojo.com showed. Mutual funds collectively held 5.16 per cent in 25 schemes.

For the quarter ended December, Avenue Supermarts reported a 53.3 per cent year-on-year rise in standalone profit at Rs 394 crore , while revenue for the quarter rose 23.90 per cent to Rs 6,752 crore.

Retail grocery stores are part of essential services and are open during the ongoing lockdown. Analysts are still assessing if the lockdown can actually lead to a sales boost.

A few believed Avenue Supermarts may benefit from the lockdown, as people stock up on staples fearing an imminent supply crunch.

“Relatively, grocery retailers’ numbers for this quarter should be strong, as people are stocking up and buying for the lockdown,” said Gautam Duggad, Head of Institutional Research at Motilal Oswal Financial Services

“These are very volatile times. We don’t know how the stock will perform in the days to come,” he said.

Antique Stock Broking said on March 18 that it believed the loss of revenue and profitability in general merchandise would be offset by higher sales of groceries. “We believe the tendency of consumers of stocking up in the fear of extended shutdown/lockdown should drive DMart’s revenue,” Antique analysts said in a note.

“We currently maintain our earnings forecast and target price of Rs 2,080. However, due to limited upside in the stock, we downgrade it to ‘hold’,” they said.

Not all agreed that these retailers will fare well.

In a note on Wednesday, IIFL Securities said it expects Indian retailers to report muted sales, given the 21-day lockdown announced by the government and the sales decline could 60-80 per cent in the initial week of March.

“This weakness, as well as expectations of a gradual recovery in H2FY21 drove a 17-50 per cent cut in the FY21-22 EPS estimates across our coverage universe. Of this, the lowest cut was for Avenue Supermarts at 17 per cent for FY21 and 10 per cent for FY22,” the brokerage said.