DMart Q1 Result Review: Analysts Raise Target Price Despite Muted Growth

Analysts retained their long-term bullish calls on Avenue Supermarts Ltd. and raised the price targets even as the DMart chain operator's first-quarter earnings missed estimates.

Here's what brokerages have to say about Avenue Supermarts' Q1 FY24 results:

Jefferies

• Maintains 'hold' rating on the stock, with a revised target price of Rs 3,700 apiece from Rs 3,425, implying a potential downside of 4%.

• Even as pressures continue, there was a sequential improvement in gross margins by 115 basis points, as the general merchandise mix is now close to pre-Covid level, which is a key positive.

• Potential reasons driving weakness in apparel sales contribution could be inflationary stress impacting mass discretionary consumption, lower footfalls versus pre-Covid impacting impulse purchase, and share gains by e-commerce.

• DMart typically accelerates store additions in the second half. The brokerage continues to build in 40 store adds over the remaining quarters.

Nuvama Institutional Equities

• Maintains 'hold' rating on the stock with a price target of Rs 4,015 (earlier it was Rs 3,913), implying a potential upside of 4.6%.

• The management did make a statement that the mix is improving and trending towards pre-pandemic level, but this quarter’s performance is not an improvement over last. Hence, this remains a concern.

• The key question remains if the mix change or the general merchadise profile is transient or marks a structural shift.

• Store openings are lower-than-expected at 12. But DMart’s store openings have been bunched up even in the past. The brokerage is building in 50 stores for FY24.

• Competition from e-commerce companies remains a key risk.

Morgan Stanley

• Assigns 'equal weight' on the stock with a target price of Rs 3,786 apiece, implying a potential downside of 1%.

• Revenue per square feet of Rs 8,613 during Q1 was higher than Rs 8,311 reported in Q1 of last fiscal, but lower than Rs 9,476 pre-Covid. This could be partly explained by the greater store sizes now.

• While the topline was broadly known, Ebitda and PAT growth slowed even on a 4-year CAGR basis to 15% and 19% versus 20% and 24%, respectively, in Q4 FY23.

• Lower demand for better-margin general merchandise and apparel categories remains a key challenge.

Motilal Oswal

• Retains 'buy' with a revised target price of Rs 4,420 apiece, implying a potential upside of 15%.

• Despite a weak environment, DMart managed to maintain its ebitda margin at pre-Covid levels through its strong cost-control, unlike most other retailers, which have taken a 200-650 basis points margin hit.

• DMart's larger stores are now in the base and will start contributing to store productivity, with further room to grow their footfalls.

• The same-store-sales growth is set to recover in FY24 and could drive growth, buoyed by a revival in discretionary demand.

Dolat Capital

• Maintains 'sell' with a target price of Rs 3225 from Rs 3200, implying a potential downside of 16%.

• DMart's high margin general merchandise and apparel categories continues to struggle, with increase in competition from vertical players.

• The brokerage foresees increased challenges for Dmart in short-term with respect to same-store-sales growth, store additions and mix improvement in the backdrop of weak consumer sentiments, rising competition and rich multiples/high expectations. However, the long-term growth and business fundamentals of Dmart remain strong.