DMart Q3 business update gets cautious thumbs up from brokerages; speed up, say analysts

As of December, Avenue Supermarts has said that the total number of stores was 341.

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DMart retail chain operator Avenue Supermarts received mixed reviews on its Q3 update, with brokerages acknowledging operational improvement and business strength, but calling for a pick-up in pace and strategy overhaul to grow faster. At open, the stock fell 2 percent and was trading at Rs 4,010.25.

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On January 2, Avenue Supermarts said in a regulatory filing that standalone revenue from operations for the quarter ended December 31, 2023 surged 17.19 percent to Rs 13,247.33 crore. As of December, the company had a total of 341 stores.

HSBC has a ‘buy’ call on the DMart stock with a target price of Rs 4,600, implying an upside of 12 percent. While the Avenue Supermarts business model is formidable, the firm needs assortment overhaul and network strategy reset, said the brokerage.

Morgan Stanley, which has an ‘overweight’ call on the stock with a target price of Rs 4,471, also lauded operational metrics, highlighting further improvement. However, the brokerage expressed the need for an accelerated pace of store additions to bolster growth.

In the third quarter, Avenue Supermarts expanded its footprint by opening five outlets. HSBC said that this pace of store additions is relatively “pedestrian”.

HSBC analysts also highlighted that the Q3FY24 sales growth remained below the pre-Covid Levels. On the other hand, despite a sequential decline in Q3FY24 sales growth to 17 percent on-year, the HSBC report noted an improvement in throughput.

DMart’s revenue growth in the quarter was predominantly driven by an 11 percent increase in store count, averaging out to a robust estimate of 7 percent same store sales growth (SSSG).

Also read: D-Mart Q3 business update: Revenue jumps 17% to Rs 13,247 crore

Over the last one year, the stock has gained 0.77 percent and 159.29 percent over the last five years. On December 2, the stock closed at Rs 4,091. In Q2FY24, consolidated net profit was Rs 623.35 crore as against Rs 685.71 crore in Q2FY23. Its EBITDA margin was 8 percent for the same period against 8.4 percent in Q2FY23.

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