Shares of Avenue Supermarts Ltd (DMart) experienced a 4.23% decline in Monday's trading, hitting a low of Rs 3,910. The fall came in response to the company's less-than-expected June quarter results, prompting several brokerages to lower their target prices on the stock, primarily citing high valuations.
Q1 Performance Highlights and Brokerage Insights
Antique Stock Broking noted that DMart's Q1 margins helped cushion the impact of slower revenue growth. The company reported a 15% year-on-year sales growth in the first quarter, but this was significantly affected by a muted 5.5% growth in same-store sales. The brokerage highlighted that while older stores in major metropolitan areas showed flat performance, healthy growth in non-metro markets provided some offset.
Despite Monday's decline, DMart's stock has seen an 8% increase year-to-date. Elara Securities pointed out that DMart currently trades at 60 times its estimated FY28 earnings per share, indicating a premium valuation.
Analyst Recommendations and Revised Targets
Brokerages offered varied outlooks and revised target prices for DMart:
- Antique Stock Broking: Maintained a 'HOLD' rating. They tweaked estimates and rolled forward their valuation to 1HFY29E, reducing their target multiple to 35x EV/Ebitda. This resulted in a revised target price of Rs 4,182, down from Rs 4,437. Antique anticipates an acceleration in store additions, expecting DMart to add 70-80 stores in FY27 after only three in Q1FY27.
- Elara Securities: Suggested a target of Rs 4,700. The brokerage expects DMart's margins to remain stable as quick commerce discounting normalizes, potentially allowing for modest margin upgrades. However, this benefit is likely to be counteracted by weaker like-for-like (LFL) growth, particularly in metro markets, where LFL growth was previously projected at 7.5%.
- Emkay Global: Recommended a 'Sell' rating with a target price of Rs 3,700. Emkay cited primary disappointments stemming from slower growth in bill size and a slower-than-anticipated ramp-up in new store additions.
- MOFSL: Reaffirmed a 'BUY' rating on DMart, assigning a 40 times September 2028 EV/Ebitda multiple (implying 72 times September 2028 P/E). This led to a revised target of Rs 4,800. MOFSL noted that after a bump in Q4, LFL growth normalized to 5.5% in Q1, largely driven by the maturing of new stores, while older metro stores saw flat growth.
The pace of store additions, which moderated to three stores in Q1, remains a critical growth lever for the company, according to MOFSL.
Disclaimer: This article provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.