DMart Share Price Jumps 14%: Should You Buy?
Stock Hits New High Amid Positive Business Update
Shares of Avenue Supermarts Ltd., the operator of the popular retail chain DMart, witnessed a significant surge of over 14% during early trade on Friday. The stock, which closed at Rs 3,617.75 in the previous session, touched a high of Rs 4,165.00 during intraday trading, reflecting investor optimism. Despite this strong rally, the stock is still far from its 52-week high of Rs 5,484.00, recorded on 24 September 2024.
The surge comes on the back of the company’s latest business update for the third quarter (October-December) of the fiscal year 2024-25. Avenue Supermarts reported a robust performance, driven by strong revenue growth and an increased retail presence. At the time of writing, DMart shares were trading at Rs 4,134, reflecting a 14.27% jump, and the company’s market capitalization stood at Rs 2,66,800.56 crore.
A Strong Quarter: Revenue Grows by 17.5% Year-On-Year
For the December quarter of FY2024-25, Avenue Supermarts reported standalone revenue from operations of Rs 15,565.23 crore, marking a significant 17.5% year-on-year increase compared to Rs 13,247 crore during the same period last year. This revenue growth is a clear indicator of the company’s strong performance and its ability to expand its footprint in India’s competitive retail market.
The retail chain, known for its affordable pricing and no-frills shopping experience, continues to grow its store count. As of 31 December 2024, DMart had a total of 387 stores, up from 373 at the end of the previous quarter. The store expansion reflects Avenue Supermarts’ strategy to deepen its presence across India’s urban and semi-urban markets.
DMart’s Store Expansion and Same-Store Sales Growth
While the overall revenue growth is commendable, some analysts are paying close attention to DMart’s same-store sales growth (SSSG). For the December quarter, the implied same-store sales growth was approximately 5.5%, which exceeded the brokerage expectations of around 4%. This is a key metric for retail chains, as it indicates how well existing stores are performing, irrespective of new store openings.
The increase in store count by 12% and the better-than-expected same-store sales growth are positive indicators for the future. However, analysts remain cautious, considering the competitive pressures that DMart faces in the fast-evolving retail sector.
Brokerage Views: A Mixed Sentiment
Despite the positive business update, the stock’s performance has drawn mixed reactions from brokerage firms, with some analysts sounding a note of caution, while others remain optimistic about DMart’s future growth potential.
Morgan Stanley’s Bearish Outlook
Morgan Stanley has maintained its bearish view on DMart, pointing out that the company’s growth rate is below its historical top-line growth of 20%. The brokerage also noted that the standalone revenue for Q3 was 1% higher than its expectations, although it cautioned that the growth was largely driven by an increase in the store count, rather than substantial growth in same-store sales.
The brokerage reiterated a target price of Rs 3,702 per share, indicating a modest upside of just 4% from the current market price. Morgan Stanley also expressed concerns over the growing competition in the retail sector, particularly from the quick commerce segment, which could put pressure on DMart’s profitability and growth rates in the future.
Macquarie’s Cautious Stance
Macquarie, another prominent brokerage, echoed concerns about competitive pressures, particularly from the growing quick commerce sector. Despite acknowledging the 12% increase in store count and the positive revenue growth, Macquarie remains cautious about DMart’s prospects. The brokerage highlighted that the Q3 quarter typically sees an improvement in gross margins, driven by a better product mix, which could be a temporary factor.
Although Macquarie has not given a specific target price for DMart shares, the firm continues to adopt a cautious outlook on the stock due to the competitive challenges it faces in a rapidly changing retail environment.
CLSA’s Optimistic View
On the other hand, CLSA, a Hong Kong-based brokerage, has maintained an optimistic view on Avenue Supermarts and has reaffirmed its “outperform” rating on the stock. CLSA highlighted that DMart’s revenue performance for the December quarter exceeded its expectations, driven by strong same-store sales growth and higher-than-expected revenue from new stores.
CLSA has set a target price of Rs 5,360 per share, indicating a potential upside of 50% from the current stock price. The brokerage is confident about DMart’s growth prospects, citing the company’s strategy of focusing on its private labels as a key factor in countering competition and boosting profitability. According to CLSA, DMart’s in-house brands have allowed the company to maintain its competitive edge and strengthen its margins.
A Look at the Competitive Landscape
The retail sector in India is highly competitive, with numerous players vying for market share. DMart faces significant competition from both organized retailers and e-commerce platforms. Moreover, the emergence of quick commerce, which provides hyper-local delivery in minutes, has put additional pressure on traditional retailers like DMart.
Despite these challenges, DMart has managed to carve out a niche for itself by focusing on value for money, maintaining low operating costs, and expanding its store network. The company’s commitment to offering a no-frills shopping experience and focusing on private labels has helped it maintain its market position.
Should You Buy DMart Stock?
The surge in DMart’s stock price following the positive business update has prompted investors to ask whether it is a good time to buy the stock. While the company’s revenue growth and store expansion are certainly positive signs, there are some risks to consider.
Growth Deceleration: The company’s growth rate is slower than its historical average, and some analysts are concerned about the pressure from increasing competition, especially from quick commerce platforms.
Valuation: The stock is currently trading at a significant premium compared to its earnings and historical growth rate. This raises concerns about its valuation, especially considering the mixed outlook from brokerage firms.
Opportunities for Growth: On the other hand, DMart’s strong store expansion, focus on private labels, and ability to outperform expectations make it an attractive long-term investment for those who are bullish on the retail sector’s potential in India.
For investors looking for short-term gains, it is essential to tread cautiously, given the competitive landscape and potential challenges ahead. For those with a long-term horizon, DMart remains an attractive investment due to its solid track record, market position, and growth potential. However, it is crucial to keep an eye on the broader market conditions and the performance of the retail sector to make an informed decision.
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