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DMart shares fall 13% in 2023; what’s ailing the retail stock?

DMart shares fall 13% in 2023; what’s ailing the retail stock?

DMart share price today: DMart stock was trading 0.03% higher at Rs 3542 today against the previous close of Rs 3541 on BSE. Market cap of the firm rose to Rs 2.29 lakh crore

 DMart shares have lost 13 per cent in a year and fallen 12.97 per cent since the beginning of this year.  However, the shares have been rising for the last two sessions. DMart shares have lost 13 per cent in a year and fallen 12.97 per cent since the beginning of this year. However, the shares have been rising for the last two sessions.

Shares of Radhakishan Damani led-DMart (listed as Avenue Supermarts) are in a downtrend this year. The stock of the market leader has slipped 13% against a 4% rise in the benchmark Sensex this year. DMart stock has turned weak due to high inflationary pressures and rising competition over the past two years, said analysts. The December quarter earnings were not encouraging either. Slower pace of recovery in the higher-margin discretionary non-FMCG segment in a fully normal and festive quarter coupled with slower pace of network expansion led to a fall in margins in the December quarter.

Operating margin fell 100 basis points year-on-year and was flat quarter-on-quarter at 8.6% in October-December as general merchandise and apparel continued to remain subdued despite strong seasonality.

Earnings of DMart came below expectations. Avenue Supermarts reported a 9 per cent rise in its standalone net profit to Rs 641 crore against a standalone net profit of Rs 586 crore in the year-ago period. DMart operator's  Avenue Supermarts’ consolidated net profit rose 7 per cent to Rs 589 crore in Q3 FY23 from Rs 553 crore in the year-ago period. Consolidated revenue rose 25.5 per cent to Rs 11,569 crore. The company's standalone revenue jumped 25 per cent to Rs 11,305 crore as compared to Rs 9,065 crore in the same period a year ago.

The slow pace of expansion in stores has also affected sentiment around the stock. The store addition was soft as DMart opened just 4 stores in Q3, taking the total count to 306. DMart opened only 22 stores during the nine months of FY23. To match last year’s addition of 50, it needs to open 28 stores during Q4, Jefferies said. The firm opened its highest ever 50 stores in the last fiscal.

In August 2022, the firm said it plans to raise its store count five times to grow market share and counter aggressive expansion from Mukesh Ambani led Reliance Retail Ltd, However, it did not give any timeline for the same.  

In the current trading session, DMart stock was trading 0.03% higher at Rs 3542 against the previous close of Rs 3541 on BSE. DMart shares have lost 13 per cent in a year and fallen 12.97 per cent since the beginning of this year. However, the shares have been rising for the last two sessions. Total 0.15 lakh shares of the firm changed hands amounting to a turnover of Rs 5.31 crore on BSE. Market cap of the firm rose to Rs 2.29 lakh crore.  The share hit a 52-week low of Rs 3,185 on May 16, 2022  and a 52 week high of Rs 4606 on September 2, 2022.

Here’s a look at what analysts and brokerages said on the prospects of the stock amid the ongoing correction and post December quarter earnings.

Nagaraj Shetti, Technical Analyst, HDFC Securities said, "The stock price as per long-term charts like weekly has formed an important top reversal around Rs 5,900 levels in the month of October 21 and has been in a sharp downward correction since then. The overall chart pattern is looking weak and we expect D-Mart to slide to the next important support of around  Rs 3200 levels in the next couple of months." 

Abhijeet from Tips2trade  said, "Despite decent Q2FY23 results and a very consistently growing business, Dmart stock price is considerably down this month. Currently, the stock is very oversold and long-term investors should buy if we get a green candle on the daily charts for near term targets of 4210-4308." 

 Brokerage Prabhudas Lilladher reduced Avenue Supermarts' target price to Rs 4,675 from Rs 4,854 (earlier) following disappointing margin performance in Q3 FY23. 

"We believe high inflation has impacted the discretionary spends in Q3 which surprisingly impacted even a deep value retailer like DMart. While grocery-centric DMart Ready ramp-up and competition could be other reasons, but we remain confident of the business moat, both in offline and DMart ready model," the brokerage said. 

Prabhudas retained a 'Buy' call on the counter while suggesting that "any meaningful correction can be used as a good entry point."

ICICI Securities, too, has cut its earnings estimates for Avenue Supermarts for FY23/FY24 by 5%. “We believe, discretionary (in non-FMCG segment) has still not recovered to pre-Covid level due to stress in the lower price points,” ICICI Securities said.

 

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Published on: Jan 25, 2023, 12:18 PM IST
Posted by: Tarab Zaidi, Jan 25, 2023, 12:15 PM IST