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DMart share price falls for 2nd straight day on dismal Q1 results; should you hold or sell?

DMart in the April-June quarter showed the full impact of COVID-19 with lower footfalls, higher cost of operations and restrictions on the sale of non-essentials

Post the transaction, the total grocery and fashion revenue for the Reliance will be double that of Avenue Supermarts.
DMart, Avenue Supermarts
Slow construction activity will also hurt store opening as DMart opened only two spillover stores in the first quarter.

Radhakishan Damani’s Avenue Supermarts share price fell for the second day in a row on Tuesday after the operator of hypermarket stores DMart reported 88 per cent fall in the net profits in the June quarter of the current fiscal. In the afternoon deals, Avenue Supermarts shares were down 2.5 per cent to trade at Rs 2,175 apiece, as compared to a 1.74 per cent fall in S&P BSE Sensex. DMart in the April-June quarter showed the full impact of COVID-19 with lower footfalls, higher cost of operations and restrictions on the sale of non-essentials. Brokerage firms are not upbeat on the stock. “Although sales have recovered to more than 80 per cent of the pre-covid sale in most stores which are allowed to operate without restrictions, some stores are still facing operational issues leading to lower than normal sales,” said the brokerage firm Prabhudas Lilladher.

The brokerage firm has given a ‘reduce’ rating to the stock with a downside of 24 per cent from yesterday’s close. The firm has given a target price of Rs 1,695 apiece. It also said that slow construction activity will also hurt store opening as DMart opened only two spillover stores in the first quarter.

Research and brokerage firm ICICI Direct has recommended to hold Avenue Supermarts stock with just 5.7 per cent upside from the previous close. The brokerage firm has given a target price of Rs 2,360 apiece. The brokerage firm notes that the near term outlook remains challenging given the uncertain scenario and various limitations on store operations due to strict lockdowns enforced by local authorities. “High store concentration in the worst-hit Covid-19 states, may hamper store operations due to stringent measures by local authorities. Currently, stores are operating at 80% of pre-COVID levels with discretionary spends under pressure,” it added.

The brokerage firm Edelweiss Securities is positive on DMart given the long-term strategy, lean cost structure, strong liquidity support and lower risk to business. “Its innovation and agility to respond to change (DOW, reduction in discounting, etc.) gives it an advantage over other retailers,” it added. The firm recommended to hold the stock with a price target of Rs 2,201 apiece.

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