DMart share price falls after quarterly results; should you buy, sell, or hold Avenue Supermarts stock?

Radhakishan Damani’s Avenue Supermarts (DMart) slipped more than 1% on Monday morning as investors reacted to the company’s quarterly results.

DMart stock
DMart saw its net profit rise in the October-December quarter.

Radhakishan Damani’s Avenue Supermarts (DMart) slipped more than 1% on Monday morning to hit an intraday low of Rs 4,650 per share as investors reacted to the company’s quarterly results. The hypermart chain reported a 23.62% on-year rise in net profit during the October-December quarter, however, margins were lower due to mix deterioration. Analysts have mixed views on DMart share price after its quarterly results. While some advice selling the stock, predicting a fall in share price, others remain confident of the long-term growth story and suggest accumulating the stock.

DMart quarter under review

Avenue Supermarts clocked in a total income of Rs 9,243 crore in the October-December quarter an increase from the Rs 7,587 crore revenue the company generated a year ago during the same quarter. Net profit during the quarter came in at Rs 552.53 crore as against Rs 446.95 crore a year ago. During the quarter DMart opened 17 new stores taking the total of new stores opened so far in the financial year to 29. 

What analysts say

ICICI Securities – Sell

Analysts at ICICI Securities have retained their ‘Sell’ rating on the stock. “DMart’s 3Q revenue performance was underwhelming despite near-normal operating conditions plus significant commodity inflation,” they said. The gross margin was down 20 basis points on-year basis to 14.9% as a weak mix continued to impact gross margins. ICICI Securities has held a contrarian view on DMart, disagreeing with the consensus view of DMart being a linear and secular growth story. ICICI Securities has a target price of Rs 3,900 per share on the stock.

Kotak Securities – Sell

Kotak Securities said that DMart’s third-quarter performance was decent but not settler keeping in mind that the October-December period was a normal quarter from a Covid perspective. “We reckon that both footfalls and margins will remain under pressure in 4QFY22 as the third-Covid wave restrictions impact store operations in states like Maharashtra where Dmart has a sizeable presence,” the brokerage firm said. The brokerage firm has a ‘Sell’ rating on DMart owing to expensive valuations. Analysts have pinned a fair value of Rs 3,200 per share on DMart.

Edelweiss – Reduce

Analysts at Edelweiss believe Avenue Supermarts performance was stable during the quarter. “Based on the commentary, we anticipate greater impact on the sub-category of apparel and footwear within GM and Merchandise. DMart managed to keep a check on expenses, due to which EBITDA margin at 9.7% came in line with estimates,” Edelweiss said. The brokerage firm values the stock at 65x EV/EBITDA and has rolled forward the valuation to Q1FY23, which yields a target price of Rs 3,966 up from the previous target of Rs 3,782 earlier.

Prabhudas Lilladher – Accumulate

Holding a constructive view on the stock, Prabhudas and Lilladher analysts said that DMart has reported strong growth despite higher inflation and lower mobility impacting sales of nonessentials like apparel and general merchandise. “We expect strong growth to sustain as D’Mart is yet to fully sweat 67 stores opened in past 24 months. We estimate 31% PAT CAGR over FY20-24 (48.3% over FY22-24) and remain positive for the long term,” they added. The brokerage firm has a target price of Rs 5,345 per share on DMart. 

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