Why are DMart shares rising for four sessions?

Shares of Avenue Supermarts, which operates the DMart chain of hypermarkets, surged over 4% on Monday, extending their rally for the fourth straight session, after the retailer released June quarter earnings. The retail stock has risen as much as 7.3% in four sessions amid optimism over Q1 earnings and firming trend in the broader market.

Cheering Q1 numbers, DMart shares jumped 4.3% to ₹5,166.10 in early trade against the previous closing price of ₹4,953.35 on the BSE. The market capitalisation of billionaire RK Damani-led retail firm climbed to ₹3.24 lakh crore, with 38 thousand shares changing hands over the counter in the first two hours of trade so far compared to the two-week average of 22 thousand stocks.

The share price of DMart touched its 52-week high of ₹5,220 on June 19, 2024, and a 52-week low of ₹3,493.05 on August 16, 2023. The counter has given 34% returns in the last one year; 29% in six months; and 23% in the calendar year 2024. In the last one month, the retail heavyweight witnessed some correction, falling over 1% amid profit booking at higher levels.

The Mumbai-based Avenue Supermarts released its earnings report on July 13, posting double digit growth in its top and bottom line, led by healthy same-store sales growth and continued improvement in revenue from general merchandise and apparel. However, operating cost rose amid investments in improving service sales and building capability for the future.

The standalone net profit rose 16.8% to ₹812 crore in Q1 FY25 compared with ₹695 crore in the corresponding quarter of last year. The profit margin stood at 5.9% in Q1 FY25 as versus 6% in the same period last fiscal. During the quarter under review, standalone total revenue grew by 18.4% to ₹13,712 crore against ₹11,584 crore in the corresponding period last year.

On the operating front, Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at ₹1,221 crore, as compared to ₹1,036 crore in the corresponding quarter of last year. EBITDA margin stood at 8.9% same as Q1 FY24. 

“Our revenue for Q1 FY2025 grew by 18.4%. Contribution from General Merchandise and Apparel continued to improve during the quarter and this is reflected in the gross margin uptick (Q1 FY25 vs Q1 FY24). We opened 6 new stores during the quarter,” says Neville Noronha, CEO & Managing Director, Avenue Supermarts.

“Operating costs have gone up due to continuing effort on improving service levels and building capability for the future,” he says.

DMart added 6 stores during the quarter (versus 3 stores added in Q1 FY24; 41 in FY24 vs 40 stores in FY23), taking its total store count to 371 (15.4 million square feet). 

Analysts view on DMart Q1 earnings

ICICI Securities has maintained ‘ADD’ call on the stock with a target price of ₹5,400, saying that DMart’s result would continue to stand-out versus peers in the retail sector. Both two key concerns in DMART - stress in General Merchandise (GM) and slower retail expansion rate appears to have bottomed out, it says in a note.

“We broadly maintain our earnings estimates for FY25E/FY26E, modelling revenue/ EBITDA/PAT CAGR of 21%/26%/27% over FY24-26E. We maintain ADD with a DCFbased target price of ₹5,400,” the brokerage says.

On the other hand, Prabhudas Lilladher has cut rating to ‘Accumulate’ from ‘Buy’ earlier with a price target of ₹5,104, citing that relatively slow scale up in DMart ready versus quick commerce players can pose some challenge in long term. “We assign a DCF-based target price of ₹5104. Re-rating looks unlikely given valuations of 81xFY26 and 76.7xJune26 EPS. Cut to Accumulate (Buy earlier),” it says in a note.

Meanwhile, Motilal Oswal has retained ‘Buy’ call on DMart with a price target of ₹5,500, saying that healthy cost efficiency and a recovery in discretionary demand should drive future growth. “We broadly maintain our FY25/FY26 estimates and factor in a CAGR of 22%/31% in revenue/PAT over FY24-26, aided by 11%/9% growth in footprints/revenue productivity. Subsequently, we assign a 52x EV/EBITDA multiple (83x PE) on FY26E basis to arrive at a TP of ₹5,500,” it says.

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