DMart share price plunges 5.5% on valuation concerns
2 min read 15 Oct 2018, 11:17 AM ISTEarnings lagged estimates as DMart (Avenue Supermarts) cut prices across categories, hurting margins in the September quarter
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Mumbai: Shares of Avenue Supermarts Ltd, which operates DMart stores, on Monday recorded its biggest single-day fall since listing, eroding almost ₹ 5,000 crore in market valuation.
The share plunge followed cuts in target prices by several brokerages after the company posted lower-than-expected earnings for the September quarter. DMart shares fell as much as 7.1%, before closing 5.5% lower at ₹ 1,333.15 on the BSE. The shares have risen 12% in 2018. Since its listing in March last year, the stock has surged more than threefold.
Of 15 analysts tracking DMart, as many as eight have sell ratings, while five and two analysts have buy and hold ratings respectively, according to Bloomberg.
Earnings lagged estimates as the company cut prices across categories, hurting margins in the September quarter. Revenue grew 38% to ₹ 4,870 crore.
Earnings before interest, tax, depreciation and amortization, or Ebitda, rose 23% on-year to ₹ 390 crore, but trailed market expectations of ₹ 460 crore. Margins contracted by 110 basis points to 8%, the first time in four quarters. This led to slower-than-expected 18% rise in profit to ₹ 230 crore, against expectations of ₹ 270 crore.
“Amid rising competition from online players, the company undertook price cuts across consumer categories in Q2FY19, which in our view is the right strategy, but will result in margin pressure. We cut our Ebitda estimates by 3%," said Jefferies India in a note to investors.
“Strong execution continues and proactive price cuts reflect management’s paranoia about growth and market share," the brokerage said as it kept its hold rating on the stock and cut the target price by about 6.5% to ₹ 1,375 a share.
“Though DMart will be one of the key beneficiaries in the organized grocery retail space, trajectory of earning growth will taper down viz-a-viz built in the valuations keeping risk-reward unfavourable (trading at 40x Ebitda FY20). We roll over to September 20 Ebitda and cut our target EBITDA multiple to 35 times (from 40 times earlier)," Jefferies said in its report.
The company added just three stores in the first quarter and five in the second. The total store count stood at 160 as of September 2018.
“This is a relevant metric to monitor as we think the stock seems to price acceleration in the pace of store expansion with steady operating metrics," said Citi Research Equities in a note. Citi kept its sell rating on DMart while lowering the target price by 11% to ₹ 1,255 a share.
Brokerage Prabhudas Lilladher also retained its reduce rating and cut the target price by 8.9% to ₹ 1,286. Motilal Oswal maintained its sell rating and reduced its target price by 20% to ₹ 1,124 a share.
