DMart plunges 8% on ‘rich’ valuation

K.S. Badri Narayanan Hemani Sheth Mumbai/Chennai | Updated on October 18, 2021

Analysts see little headroom despite robust Q2 show

Shares of Avenue Supermarts Ltd, which hit a fresh high during the early trade on Monday after reporting strong second quarter results, failed to sustain the gains due to valuation concern.

After opening at ₹5,640 on the BSE, the stock zoomed to a record high of ₹5,899.90. The gains were short-lived as the stock started sliding to hit a low of ₹4,850.10, before closing at ₹4,894.90, a fall of 8.16 per cent over the previous day’s close. On the NSE, it closed 7.6 per cent lower at ₹4,920.

Net up two-fold

Avenue Supermarts on Saturday reported a twofold increase in its consolidated net profit to ₹417.76 crore for the second quarter ended September 2021. The company had posted a net profit of ₹198.53 crore in the July-October quarter a year ago.

Its revenue from operations was up 46.79 per cent to ₹7,788.94 crore during the quarter under review as against ₹5,306.20 crore in the corresponding quarter of the last fiscal.

On a standalone basis, Avenue Supermarts’ revenue from operations during the quarter was at ₹7,649.64 crore, up 46.6 per cent, in comparison to ₹5,218.15 crore in the second quarter of 2020-21.

Mixed views

According to HSBC Global, Dmart’s Q2 revenue growth is about its estimate. “The pace of the recovery is gaining significant steam. This momentum also highlights how resilient Dmart’s business model is and that it can thrive, despite disruptions,” it added.

Goldman Sachs, which maintained Buy rating with a revised price target of ₹4,539 said, DMart’s revenue growth of 5 per cent was ahead of its expectations. “We believe the revenue beat was driven by stronger footfall recovery as lockdown restrictions eased during the quarter.”

Also read: D-Mart Q2 profit rises two-fold to ₹417 cr

However, domestic brokerage ICICI Securities gave the stock a Sell rating with a target price of ₹4,000.

“Capex recovery and DMart Ready’s gradual expansion are also encouraging. Extremely expensive valuations limit our willingness to have a constructive view; stock now trades at 128x P/E on FY23E,” it added. Motilal Oswal Research, while giving a neutral rating with a target price of ₹4,900, said, “Unlike other retail categories, grocery retailers such as DMart have seen a limited impact and swift recovery from Covid-19, with a healthy margin improvement.”

However, the stock is trading at rich valuations, it added.

IDBI Capital, however, upgraded the rating on the stock to Buy with a revised target price of ₹6,985.



Published on October 18, 2021

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