Buy On Dips! Radhakishan Damani-Backed DMart Share Seen To Rise By 30%, TP Set Over Rs 5,000-Mark

Radhakishan Damani, billion dollars worth of retail stock, DMart which is listed in the name of its operator Avenue Supermarts witnessed bears on Monday. The large-cap stock toppled by a little over 4% after the largest listed retail chain operator posted lower margins on a year-on-year basis in the September 2023 quarter. Also, operating parameters had bottomed out in the quarter, which further added to the woes.

Post the Q2 results, experts are split in opinions, however, the majority has given a buy recommendation on the stock price with a target price as high as crossing the Rs 5,000 mark ahead.

On Monday, DMart shares ended at Rs 3856 apiece, down by Rs 76.75 or 1.95% on BSE. The market cap stood at Rs 2,50,922.67 crore. During trading hours, the stock plummeted by 4.09% with an intraday low of Rs 3,771.70 apiece, which will also be the steepest single-day drop in nearly five months.

During Q2FY24, the company garnered a consolidated net profit of Rs 623.35 crore, registering a decline of 9.09% year-on-year. PAT margins also contracted to 4.9% in Q2FY24 as compared to 6.4% in Q2FY23. Further, consolidated EBITDA stood at Rs 1,005 crore, as compared to Rs. 892 crore in the corresponding quarter of last year. EBITDA margin stood at 8.0 % in Q2FY24 as compared to 8.4% in Q2FY23.

On the top-line front, consolidated revenue stood at Rs 12,624.37 crore in Q2FY24, rising by a whopping 18.66% from a revenue of Rs 10.638.33 crore a year ago same period.

Should You Buy Sell Or Hold DMart shares?

Amnish Aggarwal and Vishwa Solanki analysts at Prabhudas Lilladher in their Q2 review report said, "D'Mart 2Q results were in line on EBITDA and PBT (13.9% growth YoY) although higher tax rate (26.8%) and tax write back (Rs1.4bn) in base quarter impacted PAT. D'Mart reported improved operating parameters despite delays in festival season. LTL sales growth of 8.6% shows a strong trend while sales/sq ft. growth of 6% and sales/store growth of 6.5% are the best in past many quarters (ex of covid base quarters). Bills/store/day declined QoQ while average bill value increased 12.7% QoQ, more so in line with seasonality."

Going ahead, on valuation, Kotak Institutional Equities and Antique Stock Broking have recommended to Sell and Holding DMart shares. Other brokerages like Motilal Oswal, Prabhudas Lilladher, and Centrum have recommended buying. The stock is predicted to rise as high as nearly 30% and is likely to touch an impressive target price of Rs 5,006 per share which is set by Centrum.

Duo at Prabhupada said, "We believe that the loss of sales in Apparel is structural as value formats like Zudio and Reliance Trends have reduced the consumer appeal of Hypermarts. We note that the CWIP increase of Rs3.9bn in 1H24 and 12 store additions makes us confident that D'Mart will be add 45 stores in FY24. We believe worst seems nearly over and Food and Grocery segment is expected to drive rebound in sales and profit growth in coming quarters."

Further, they estimate 10% EPS growth in FY24 but 27.3% CAGR over FY24-26. D'Mart has a huge runway to grow with 1500+ store potential in duopoly market and scale up in D'Mart Ready. Hence, Prabhudas note said, "We remain positive and increase DCF based target price to
Rs4724 (Rs4576 earlier) as we roll forward to Sept25. Retain BUY."

Meanwhile, Motilal Oswal's note also recommends buying DMart shares, however, the brokerage has trimmed its PAT estimates for FY24.

Motilal's note said, "We have cut our FY24E PAT by 4.6% on slower recovery in 1HFY24E but expect gradual improvement from 2HFY24E factoring in a revenue/PAT CAGR of 25%/26% over FY23-25 aided by 16%/8% growth in footprints/revenue productivity. Subsequently, we assign a 42x EV/EBITDA multiple on an Sep'FY25E basis to arrive at our TP of Rs 4,500. We reiterate our BUY rating on the stock."

Further, Centrum said it remain attracted by DMART's sharp execution skills and large opportunity size. The
organized grocery retail industry penetration is at 4-5% in India giving enough headroom for the company to grow.

Centrum also said, "We adjust our EPS estimate for FY24/25 by -6/-12% each respectively. We roll forward our estimates to FY26. We maintain BUY rating valuing the stock at 80x 1HFY26 EPS estimates to arrive at a TP of Rs5,006."

On the other hand, Kotak Institutional Equities recommends selling in its note, while stating, "Dmart's SSSG print of 8.6% in 1HFY24 is modestly better than expected. This broadly offsets lower store addition in the near term. Roll-forward coupled with lower capex estimates drives a revised FV of Rs3,600 (Rs3,475 earlier). We retain a cautious stance on the stock. SELL stays due to punchy valuations."

Moreover, Antique Broking's note said, "Going ahead, the key monitorable for DMart's performance will be a recovery in sales of superior margin general merchandise & apparels, recovery in mature stores/ SSSG (%) to pre-Covid-19 levels, and inflationary trends. In view of the muted performance of general merchandise and overall gross margin, we cut our FY24/ 25E EBITDA estimates by 8%/ 7% respectively. We rollover our target price to 1HFY26 estimates and downgrade the stock to HOLD with a revised target price of Rs 3,893 (valuing at 45x 1HFY26 EV/EBITDA from 50x earlier)."

Damani publicly holds 14 stocks whose net worth together is over Rs 1.75 lakh crore, as per Trendlyne data. But his largest shareholding, a little over 96% of the total portfolio, is in the grocery store brand DMart he founded in 2002. As of October 16th, his shareholding is valued at nearly Rs 1.69 lakh crore.

As of June 30, 2023, Damani holds 437,444,720 equity shares or 67.2% stake in DMart.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.