DMart Q2 Results Review: Analysts See Growth Potential Led By Festive Season

Most brokerages raised the target price for Avenue Supermarts Ltd., even after the operator of the DMart hypermarket chain missed Q2 earnings estimates.

Here’s what analysts have to say about Avenue Supermart’s Q2 FY24 results:

Jefferies

• Maintains a 'hold' rating on the stock, with a target price of Rs 3,850 apiece (earlier: Rs 3,700), implying a potential downside of 2%.

• The brokerage sees pickup in store adds and improvement in general merchandise and apparel mix as a must for stock performance.

• The general merchandise and apparel mix remained muted, driving gross margin pressure. Concerns continue if mix deterioration is cyclical or structural; the brokerage is unsure on this as of now.

• On the positive side, the same store sales growth in the first half of FY24 is respectable, with improving footfalls evident from higher per-store transactions. Store adds remained muted but should see a ramp-up.

Motilal Oswal Financial Services Ltd.

• Retains a 'buy' rating with a revised target price of Rs 4,500 per share, implying a potential upside of 14%.

• Revenue per square feet, which remained a laggard, has seen a recovery and improved 6% year-on-year during the quarter. This implies a higher contribution from the larger stores, which is a key positive.

• Robust store additions (72% footprint additions over FY20-23), healthy cost efficiencies and a recovery in discretionary demand, with the onset of festive season are likely to drive growth in the quarters ahead.

• The brokerage has cut PAT estimates for FY24 by 4.6% due to a slower recovery in H1 FY24. But expects gradual improvement from the second half, factoring in revenue and PAT CAGR of 25% and 26%, respectively, over FY23–25.

• DMart has managed to protect its Ebitda margin at pre-Covid levels through its strong cost-control measures, unlike most other retailers.

• Recovery within the higher margin category of the general merchandise and apparel segment remains a key indicator of margin improvement going forward.

ICICI Securities

• Maintains a 'hold' rating with a target price of Rs 4,000 apiece (earlier: Rs 3,700), implying a potential upside of 2%.

• DMart's performance continues to be unimpressive; revenue growth appears to have been permanently marked down to 20% CAGR since the last two years.

• The margin-accretive apparel segment would be a long-gestation turnaround.

• DMart's retail expansion rate has been healthy, but a bulk of store addition (73% of FY24 estimate) is likely in the second half of FY24.

• The downside of the underperformance in apparel is limited, as DMart is a platform business. All other strengths of the retailer remain intact.

• Key downside risks are higher-than-expected competitive intensity in food and non-food segments and a slower turnaround of e-commerce operations.

Dolat Capital Market Pvt.

• Upgrades to 'accumulate' rating, with a revised target price of Rs 4,100, implying a potential upside of 4%.

• Dmart’s Q2 FY24 earnings highlight early signs of recovery.

• Led by a favourable base, a festive season and a recovery in gross margins, DMart is expected to register healthy growth in the near term.

• The acceleration in store additions is inevitable. Store adds at 12 in the first half and nine in Q2, though, were a tad soft.

• Revenue growth is healthy, considering the moderation in inflation of FMCG goods. Inflation works in favour of Dmart from a growth perspective. Foods and FMCG revenue grew by a modest 8.4% and 6.7%, respectively, in H1 FY24 versus H2FY23. General merchandise and apparel growth, however, was healthy at 19.5% during the same period.

• The opportunity size, long-term growth and business fundamentals of Dmart remain significantly strong.

• Competition from strong vertical-specific players, as witnessed in apparel, in each of the sub-categories remains a key risk.