Electronics Mart India shares plunged 12% today; JM target suggests 51% upside!

Shares of Electronics Mart India Ltd plunged 12 per cent in Tuesday's trade, as Q2 earnings print fell short of analyst estimates. JM Financial said while store additions remained on track, sales growth was impacted by extended monsoons, especially in key markets of south cluster, resulting in same store sales decline of 0.6 per cent YoY.

JM Financial said gross margin progression was disappointing on account of adverse product mix -- lower salience of large appliances, which along with scale deleverage drove a 10 per cent miss on Ebitda and 13 per cent miss on profit after tax. 

Following the development, shares of Electronics Mart India fell 11.58 per cent to hit a low of Rs 161.85 on BSE. With this, the stock is down 21 per cent in 2024 so far. JM Financial's target on the stock at Rs 244 suggests a 51 per cent potential upside over this price.

In terms of guidance, the management remains confident about 25-30 store addition target and with festive period so far tracking well, it expects sales growth of 15-18 per cent for FY25E. 

"Going ahead, given the challenging demand environment (urban slowdown highlighted by consumer companies), pace of recovery in SSSG will be key monitorable in the near term. Factoring weak Q2 and challenging demand scenario in urban markets, we have cut our multiple to 36 times against 38 times earlier and earnings estimates for FY25-27E by 4-6 per cent," JM Financial said.

From long term perspective, the domestic brokerage believes EMIL has ingredients in place to tap large opportunity in organised electronic retail industry. For now, the brokerage has maintained a 'Buy' on the stock.

While store additions in Q2 remained healthy, revenue growth for the quarter was impacted by extended monsoons in key markets such as Hyderabad and Vijaywada, postponement of buying to the festive month of October due to Shraddh period in September this year. 

The base quarter also benefitted from extended summer. Same store sales declined 0.6 per cent, Bill cuts increased by 7 per cent while average ticket size was flat YoY, JM Financial said. 

In terms of region-wise performance, south cluster sales grew just 4 per cent, impacted by flattish growth in largest market of Telangana. North cluster grew 56 per cent YoY aided by store additions. Incentive/commission income was flat for the quarter. 

"In terms of regional performance, pre-IND AS Ebitda margin for south cluster stood at 7.8 per cent while north cluster saw Ebitda loss of INR 15mn (impact of higher store additions which also includes 7-8 stores for which costs have been incurred but are not operational yet)," JM Financial said.