DMart shares dip 5% to 3-month low as analysts remain cautious after Q2 business update

Shares of Avenue Supermarts, which operates the retail chain DMart, tumbled 5% in the trading session on Friday, 4 October, to a three-month low of ₹4,703 apiece. This decline came following the company's September 2024 quarter (Q2FY25) business update, which fell short of analysts' expectations. 

In an exchange filing on Thursday, the company reported standalone revenue from operations of ₹14,050.32 crore for the September quarter, reflecting an increase of over 14.2% from ₹12,307.72 crore in the same quarter of the previous fiscal year (Q2FY24). The company recorded revenue of ₹10,384.66 crore in Q2 FY23 and ₹7,649.64 crore in Q2 FY22. 

As of September 30, 2024, the total number of stores operated by the company stood at 377.

Cautious view 

Following the company's Q2 business update, global brokerage firm Citi maintained its 'sell' rating on the stock with a target price of ₹3,350. The 14.2% year-on-year (YoY) Q2 revenue growth fell short of Citi's estimate of 19%.

Further, the revenue per store showed a 2.9% CAGR over five years, reflecting only a 2.2% YoY growth compared to Citi's projection of 6.5%. The brokerage remained cautious on the stock, given its current valuation.

Similarly, Goldman Sachs also continued with its 'sell' rating on the stock with a target price of ₹4,050. The brokerage notes a significant moderation in growth, which appears to be driven by a slowdown in same-store sales growth (SSSG).

This slowdown is likely influenced by the rapid expansion of quick commerce players. Additionally, the brokerage highlighted that the store addition target may be at risk and has adjusted its FY25/26/27 earnings per share estimates down by 2% to reflect lower-than-expected revenue growth.

Morgan Stanley maintained an 'overweight' rating on the stock with a target price of ₹5,769, highlighting that while the standalone Q2 revenue did not meet estimates, operational metrics showed improvement, albeit at a slower rate. Similarly, Macquarie also holds an 'overweight' rating on the stock, with a target price of ₹5,600 per share. 

In its August report, Bernstein maintained an ‘overweight’ rating on the stock with a target price of ₹6,300. It highlighted that DMart stands to benefit from rising incomes and the ongoing shift from unorganised to organised retail, positioning itself as the most efficient player in this sector.

It believes that DMart possesses the key attributes to enhance consumer engagement within its touchpoints and has access to a substantial total addressable market (TAM) of $600 billion as a potential growth arena.

The company in the June quarter reported a consolidated net profit of ₹773.8 crore for the first quarter of 2024-25, marking a 17.5% increase from ₹658.8 crore in the same period last year. The company's consolidated revenue from operations also saw a YoY rise of 18.6%, reaching ₹14,069.1 crore, up from ₹11,865.4 crore.

The stock began its upward momentum in February 2024, increasing by 22% to date. However, it continues to trade at a 20% discount to its record peak of ₹5,900, which it reached in October 2021.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.