DMart Shares Gain As Strong Q1 Results Drive Target Price Upgrades

Shares of Avenue Supermarts Ltd. gained on Monday after several brokerages raised the target price on the stock following the release of its first-quarter results.

The DMart operator's net profit rose 17.5% year-on-year to Rs 774 crore in the first quarter ended June 2024, according to an exchange filing. Revenue grew 18.6% during the period, reaching Rs 14,069 crore.

Revenue remained in line with consensus estimates, but net profit missed analyst expectations.

Avenue Supermarts Q1 Results: Key Highlights (Consolidated, YoY)

• Revenue rises 18.6% to Rs 14,069 crore. (Bloomberg estimate: Rs 13,957 crore).

• Ebitda rises 18% to Rs 1,221 crore. (Bloomberg estimate: Rs 1,249 crore)

• Ebitda margin remained flat at 8.7% (Bloomberg estimate: 8.9%)

• Net profit rises 17.5% to Rs 774 crore. (Bloomberg estimate: Rs 849 crore)

Nuvama has a 'hold' for the stock but has raised the target price to Rs 5,091 apiece from Rs 4,821 apiece earlier, while Citi has a 'sell' on the stock but has raised the target price to Rs 3,550 from Rs 3,400 earlier.

Motilal Oswal has maintained its 'buy' rating and a target price of Rs 5,500. The brokerage noted that subdued same-store sales growth in the reporting quarter was mainly due to the addition of bigger stores over the last couple of years and weak discretionary demand.

However, despite its weak same-store sales growth, DMart has managed to protect its Ebitda margin at pre-Covid levels through strong cost-control measures (unlike most other retailers), according to the brokerage.

The recovery in revenue per square feet and the reducing gap between revenue-per-store and revenue-per-square-feet, further implied that the share of larger-format stores improved, which is positive, it said. "Moreover, moderating inflation and a revival of discretionary demand could improve the SSSG trend."

Citi stated that it seeks a better entry point because the risk-reward ratio appears unfavorable at 83 times its fiscal 2026 price-to-earnings ratio estimate. It sees risks to revenue estimates given the lower revenue per square feet and increasing competitive intensity from other large format stores and quick commerce players. Moderating store growth and margin recovery may get elongated given challenges in the apparel segment.

Shares of Avenue Supermarts rose as much as 4.46% to Rs 5,164 apiece, the highest level since June 19. It pared gains to trade 0.36% higher at Rs Rs 4,970 apiece as of 9:54 a.m. This compares to a 0.2% advance in the NSE Nifty 50 Index.

The stock has risen 21.6% on a year-to-date basis and 32.3% in the last 12 months. Total traded volume so far in the day stood at 0.82 times its 30-day average. The relative strength index was at 60.5.

Out of 25 analysts tracking the company, 12 maintain a 'buy' rating, five recommend a 'hold,' and eight suggest a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an downside of 2.6%.