DMart shares tank 4% as June quarter disappoints; time to give up on Radhakishan Damani’s firm?

By: |
July 13, 2020 12:36 PM

Radhakishan Damani’s Avenue Supermarts after reporting a 88% fall in net profit in April-June quarter, saw its share price tank 4% to trade at Rs 2,232 per share

coronavirus pandemic and Radhakishan Damani give big hit to DMart profit fell by 88 percent in june quarterAlthough retail stores supplying essential items are seeing a lower impact of the lockdown, DMart is facing the heat of low demand for non-discretionary items.

Radhakishan Damani’s Avenue Supermarts after reporting a 88% fall in net profit in the April-June quarter, saw its share price tank 4% to trade at Rs 2,232 per share. The operator of hypermarket stores DMart said that operations and financial performance during the quarter were hit by the lockdown. Revenues were down 32% from the previous year. With the latest set of numbers lacking the shine of revival and channel checks hinting at a continued impact of the lockdown hitting margins further, brokerage firms are advising to do away with the stock as demand continues to be impacted.

“Our channel checks with vendors indicate healthy recovery trends in SSSG, albeit still in the negative single digits, but ~20% of stores remain closed in the western region,” said Motilal Oswal in a note. Customers are expected to avoid discretionary spending which is again going to hit the retail chain run by ace investor Radhakishan Damani. Commentary by Avenue Supermarts said that future revenues remain uncertain as lockdown in various parts forces store closure. Consolidated total revenue for the hypermarket chain stood at Rs 3,933 crore in the June quarter, down from Rs 5,825 crore in the same quarter last year. 

Although retail stores supplying essential items are seeing a lower impact of the lockdown, DMart is facing the heat of low demand for non-discretionary items. DMart’s non-discretionary revenue contributes ~72% to total sales. “We value D-Mart at an FY22E EV/EBITDA multiple of 42x, maintaining TP of INR2000 (20% discount to the three-year average EV/EBITDA multiple of 53x). This still implies a 14% downside. Maintain Sell,” Motilal Oswal said.

Revenue from stores that have been allowed to function has now reached 80% of the pre coronavirus level but still, the impact on operations will continue as footfall remains low. Full recovery for the Avenue Supermarts might only be possible when the fear of the virus dies down and people start spending more, said Kotak Institutional Equities. The brokerage has a SELL rating, with a fair value of Rs 1,4810 per share. “We broadly maintain our FY2022/23 estimates assuming that footfalls will recover fully once the pandemic subsides,” it added. 

While it is certain that the pandemic has eaten up Avenue Supermarts revenues and might continue to do so for some time, analysts at Edelweiss are not giving up on the stock and its growth potential. “We remain positive on DMart given the long-term strategy, lean cost structure, strong liquidity support, and lower risk to business. In addition, its innovation and agility to respond to change (DOW, reduction in discounting, etc.) gives it an advantage over other retailers,” the brokerage firm said while putting a HOLD rating on the stock and a target price of Rs 2,201 per share. 

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Warren Buffett’s Berkshire AGM 2021 on May 1; all you need to know about annual investor pilgrimage
2Burger King IPO listing day strategy: Sell after listing gains, or hold for more returns?
3Petrol price at 2-year high of Rs 83 per litre, diesel at 73.32