Avenue Supermarts Q2 Results: Analysts Divided On DMart's Stock Valuations Despite All-Round Growth
Here's what brokerages made of DMart's Q2 showing.
Shares of Avenue Supermarts Ltd., the operator supermarket chain DMart, pared gains to trade lower after hitting a fresh high following the the company's quarterly earnings.
Q2 Highlights (QoQ)
Consolidated revenue rose 50% to Rs 7,788.9 crore.
Net profit surged 337% sequentially to Rs 415.2 crore.
Operating profit rose 313% to Rs 567.7 crore
Ebitda margin stood at 8.6%, up from 4.4% in the previous quarter.
The billionaire Radhakishan Damani-owned chain's shares rose as much as 10.8% to Rs 5,900 apiece, a record high before paring all its gains to trade 6% lower as of 1:56 p.m. That compared with a nearly 1% gain in the benchmark Nifty 50.
Of the 30 analysts tracking the company, nine have a ‘buy’ rating, eight recommend a ‘hold’, while 13 suggest a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a downside of 19.5%.
Here's what brokerages made of DMart's Q2 showing:
Edelweiss
Downgrades to 'reduce' from 'hold', raises target price to Rs 3,782, implying a potential downside of 29%.
The stock’s recent run-up and valuation have happened without any fundamental change in business prospects.
The massive opportunity in organised brick-and-mortar grocery is factored in.
Further rerating depends on significant strides in online grocery operations or a step-up in store addition, neither of which is yet visible.
Raised the target price to factor in reducing Covid-related uncertainty.
Motilal Oswal
Maintains 'neutral' rating, raises target price to Rs 4,900, implying a potential downside of 9%.
Unlike other categories, grocery retailers such as DMart have seen a limited impact and swift recovery from Covid-19, with healthy margin improvement.
While the online retail market has grown nearly three to fourfold to Rs 4,000 crore, with the prominence of deep-pocketed players such as Amazon and Reliance Retail, DMart continues to focus on the brick-and-mortar model.
DMart’s 29%/44% revenue/footprint growth as compared to pre-Covid levels gives confidence in the company’s growth trajectory and about seeing a limited impact from online retailers.
IDBI Capital
Upgrades from 'hold' rating to 'buy', raises target price to Rs 6,985, implying a potential upside of 31%.
Q2 results were above the brokerage's and consensus estimates. Revenue growth from subsidiaries also continues the strong march driven by improvement in the online business.
Operating profit margin now back to pre-Covid level.
During inflationary times, hard-discount retailers like DMart are likely to win even more business as customers rush to save money.
Upgraded EPS estimates for FY22-23E by 1.5-2%.
YES Securities
Maintains 'add' rating, raises target price from Rs 3,820 to Rs 5,530 apiece, implying a potential upside of 3.9%.
The recovery momentum witnessed towards the end of Q1 has picked up pace, displaying the resilience of the company’s value-retailing business model and its ability to compete with online retailers.
While valuations have become more expensive post the recent run‐up and can be a near‐term risk in case of a market correction, DMart is well‐placed to capture long‐term growth opportunity for grocery retail given its scalable model and low‐cost structure which should enable a growth rate of 25% plus for the next decade.
The company should register positive same-store sales growth in Q3, led by robust demand in the ongoing festive season.
Key risk would be any disruption due to a potential third wave of the Covid-19 pandemic.
Macquarie
Maintains 'outperform' rating, raises target price to Rs 5,950, implying a potential upside of 11.6%
DMart's Q2 profit came above estimates given healthy sales, a better mix and cost control.
Raises FY22/23/24 earnings-per-share estimates by 6% each to factor in Q2 beat and healthy recovery trends.
DMart’s recovery would benefit from increased customer adoption in an inflationary environment.
Channel checks suggest that same-store sales have improved in October from 4% CAGR on two-year basis seen in September.
This, along with rising salience of general merchandise sales, should aid Q3.
Upside risks to FY23 EPS estimate (currently 23% above visible alpha consensus) from sharper return to normalcy and inflation-led growth tailwinds.
Morgan Stanley
Downgrades to 'underweight' from 'equalweight', raises target price to Rs 4,338, implying a potential upside of 18.6%
Q2 earnings missed the brokerage's estimates but were ahead of consensus.
Given strong trailing stock performance and relative preference within its coverage, the brokerage tactically moved the stock to underweight and awaits a better price for re-entry.
Jefferies
Maintains 'underperform' rating, raises target price to Rs 3,700, implying a potential downside of 30%.
DMart surprised positively on gross margins as well as Ebitda margins, and reported strong growth in earnings, which more than doubled in Q2.
With easing of restrictions, DMart witnessed a steady revenue recovery with a better mix (share of non-essential going up). Tight control over costs helped and Ebitda more than doubled YoY.
Raised EPS forecasts by 15-25% over FY22-23E.
After the sharp rally in share price, the stock now trades at 170 times the price-to-earnings ratio of September FY22.