Dalal Street analysts maintain sell on Damani's DMart

Our Bureau Chennai | Updated on July 13, 2020 Published on July 13, 2020

Remain cautious due to Covid-19 related shutdown, high valuation

Shares of Avenue Supermarts, owners of DMart, slipped in early trade on Monday, after the company reported a sharp slide in its topline and bottomline due to the Covid-19 induced shutdown in the April-June quarter.

The stock tumbled 3.6 per cent at Rs 2,238.65 on the NSE, with almost 11 lakh shares changing hands.

DMart's consolidated revenues fell 33 per cent YoY to Rs 3,833 crore on sales of mostly essential products, with many stores remaining shut in the initial phase of the lockdown. Net profit slumped to Rs 49.56 crore (Rs 335.31 crore).

The management said unlike in the developed countries where organised retailers saw major customer traffic even during the lockdown, the same was not true for India.

Gross profit fell 42 per cent YoY and gross margins contracted 220 bps YoY to 14.2 per cent, said Motilal Oswal, which maintained a sell rating on the stock, with a price target of Rs 2,000. The company's equity funding of Rs 4,000 crore in Q4-FY20 had strengthened the balance sheet with net cash position enhancing liquidity, it said and added: Nevertheless, our channel checks suggest July 2020 is being impacted by the second phase of lockdown, with nearly 20 per cent of stores being closed once again. The non-grocery category is operating at double-digit LTL decline. Thus, there is risk of slow recovery, which could extend well beyond 1HFY21."

IDBI Capital, too, maintained its ‘reduce’ stance on DMart, with a price target of Rs 2,079.

"Large-size stores should ideally be more profitable if the company maintains its usual inventory turnout of 14x. Given the strength of DMart’s balance sheet with Rs 2,900 crore unutilised money from QIP, it would be an opportune time to bargain real-estate,” said IDBI Capital.

The company, owned by Radhakishan S. Damani, may also have to contend with the rising cost of retailing, as contract labour comes at a premium and lower margin ready sales may inch up during the pandemic, said HDFC Securities.

However, Angel Broking remains bullish on the stock and has fixed a price target of Rs 2,735, as it expects DMart to report consolidated revenue/PAT CAGR of 18 per cent/26 per cent respectively over FY2019-22E.

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Published on July 13, 2020
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