DMart drops 6% on Q2 miss; competition intensifying, say brokerages

NEW DELHI: Shares of Radhakishan Damani-led Avenue Supermarts (D-Mart) fell 6 per cent in Mondays trade after the company missed Street expectations on margin front for the September quarter. Store additions at five in the first six months of the financial year too were lower than expectations.

Kotak Securities which has a sell rating on the stock noted that while revenue growth of 39 per cent YoY for the company surprised positively, gross margins were sharply below estimates resulting in a 13 per cent miss on Ebitda front.

At 9.37 am, the stock was trading 5.77 per cent lower Rs 1,329.35 on BSE.

The company on Saturday posted 18.16 per cent year-on-year rise in net profit at Rs 225.74 crore for the September quarter. It had posted a net profit of Rs 191.04 crore in the corresponding quarter last year.

“DMarts execution engine remains healthy, though its model does not allow it to keep increasing margins perpetually, as is expected by most of the street. Our TP increases to Rs 890 from Rs 860 as we bake in higher revenue growth estimates in the future and roll forward our target price to September which offset the 50 bps increase in WACC and moderation in gross margin assumptions,” Kotak Securities said.

Brokerage Edelweiss Securities noted that the managements increasing focus on sales growth comes in light of increasing competitive intensity from Big Bazaar, Reliance Retail, Big Basket, and Walmart-Flipkart deal, among others.

“Sticking to its strategy of being a low-cost supplier and as called out that Ebitda margins are high and unsustainable, DMart cut prices across categories during the quarter, which led to gross margin and Ebitda margin contraction of 180bps and 106bps, respectively,” Edelweiss Securities.

The brokerage has downgraded the stock's rating to 'reduce' from 'hold'.

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