Radhakishan Damani's DMart shares in-line Q3 results but store addition lags; here're stock price targets

The Radhakishan Damani-led Avenue Supermarts Ltd (DMart) reported December quarter results, which largely met analyst projections. An improvement in share of larger-format stores was a positive but muted store additions were a negative, analysts said while suggesting a recovery within the high-margin category of general merchandise and apparel  (GM&A) is a key monitorable for the stock. 

DMart reported a 17.1 per cent year-on-year (YoY) rise in consolidated net profit at Rs 690 crore on 17.3 per cent YoY rise in revenue at Rs 13,572 crore. Ebitda margin for the quarter came in at 8.3 per cent, which was same as the year-ago quarter margin. DMart opened five new stores for the quarter, taking its total store count to 341.

Nuvama Institutional Equities said a 4 per cent productivity growth --as defined by revenue per square foot, was still 6 per cent below pre-Covid levels and has a scope for improvement. Commentary on GM&A share stabilising with encouraging trends post Diwali, was positive, it said.  DMart Ready performance (implied from subsidiaries) was steady, the brokerage said.

"That said, the muted addition of five stores this quarter (17 in 9MFY24) does put an execution risk to our estimate of 45 for FY24. We revise the same down to 32, adjusting for which our PAT for FY24E/FY25E is lower by 1 per cent/3 per cent. Rolling over to 9MFY26 and valuing DMart at 70 times PE (pre-covid average: 74 times) yields a revised TP of Rs 4,089," the brokerage said.

Motilal Oswal Securities said the stabilisation in GM&A contribution, combined with controlled costs, cushioned gross margin, leading to a flat YoY performance – a sign of recovery.

The recovery in revenue per sqft and the reducing gap between revenue per store and revenue per sqft further implied that the share of larger-format stores improved and this remained a key positive.

"This, along with the moderating inflation may help revive discretionary demand and consequently improve the SSSG trend. However, recovery within the higher margin category of GM&A remains a key monitorable for margin improvement going forward," the brokerage said.

This brokerage has marginally cut its DMart's PAT estimates for FY24/FY25by1-3 per cent and now factors in a revenue CAGR of 26 per cent and profit 36 per cent over FY24-26 on account of 13 per cent, growth in footprints and 12 per cent revenue productivity.

"Subsequently, we assign a 40 times EV/Ebitda multiple on an FY26E basis to arrive at our target of Rs 4,700. We reiterate our BUY rating on the stock," Motilal Oswal said.

Kotak Institutional Equities said the revenue growth of sub-20 per cent in 9MFY24 has been disappointing. It continues to monitor the recovery of the GM&A category, which the company said has stabilised after Diwali.

"We trim FY2024-26E revenues by 2-3 per cent on lower store addition forecasts (35/55/70 new stores in FY2024/25/26); the lower margin assumption drives a 3-6 per cent EPS cut. The roll-forward to March 2025 drives a revised FV of Rs3,650 (Rs 3,600 earlier). We retain SELL due to punchy valuations," the brokerage said.

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