DMart shares crack 6% after Q3 results: Should you buy, sell or hold?

NEW DELHI: Shares of Avenue Supermarts, which runs the DMart chain of retail stores in India, were the top loser in the Nifty 500 pack on Monday after its December quarter results left investors disappointed. The stock lost up to 6% during the day to hit a six-month low at Rs 3,627.

The stock, which has delivered multibagger returns to investors since its listing in 2017, has underperformed in the last one year with a double-digit loss in stock prices.

In Q3, DMart missed estimates by reporting a revenue growth of 25.5%. Its PAT (profit after tax) grew 7% YoY as weak discretionary demand pulled down same store sales growth. Its gross margins declined 60 basis points YoY and 20 basis points QoQ to 14.3%.

Here's what brokerages say on DMart stock:

Jefferies
Jefferies has lowered DMart's FY23-25 earnings by 6-8% factoring in softer store adds and lower margins. It has maintained a hold rating on the stock with a reduced target price of Rs 3,550.

Morgan Stanley
The global brokerage has downgraded the stock to equal-weight and has reduced the target price to Rs 3,853 from Rs 4,590. It said DMart disappointed both growth and margins in the last couple of quarters. The topline growth moderated on a 3-year basis and Q3 EBITDA margins were below estimates. MS sees limited triggers for near-term stock performance.

Motilal Oswal
Motilal analysts have valued the company at 50x EV/EBITDA on FY24E basis and maintain neutral rating on DMart with a target price of Rs 4,050, given its expensive valuation. "We are cognizant of the prominence of new-age grocery models, their rich valuations, and weak management commentary on the non-food category, as well as lower revenue per sqft in the last few quarters," it said.

JM Financial
JM Financial's Richard Liu remains a DMart bull and reckons the stock can easily deliver double-digit compounding over the coming five years even if PER (currently 85x FY24E) compresses significantly over that time-frame. "The strategy to sweat existing assets by piloting pharmacy shop-in-shop is interesting. We continue to like DMart - businesses with such long growth runways are rare and one should not get too carried away by short-term weakness(es)," Liu said.

Nuvama
Given the disappointment on growth, Nuvama has reduced the target valuation to 55x EV/EBITDA (60x earlier). "Rolling over the valuation to Q1FY25E yields a TP of Rs 4,193. This implies 74x FY25E PE, in sync with its pre-covid average. LFL growth is lagging pre-covid average; should this persist, it could affect its valuation further," it said.

HDFC Securities
HDFC Securities has largely maintained its estimates and retained a sell rating on the stock with a DCF-based target price of Rs 3,000. "We suspect heightened competitive intensity within DMart’s top districts may have had a role to play in lower sales density and share loss in non-discretionary categories," it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)