DMart share price drops nearly 4% after Q3FY24 business update; what should you do?

Despite the Indian benchmark indices edging towards their all-time highs, some large-cap stocks are still struggling to gain momentum, and Avenue Supermarts, which operates the retail chain of DMart, is one such stock that has been on a downward spiral over the last two calendar years.

The stock dropped nearly 4% to ₹3,940 per share in today's trading session following the company's release of Q3FY24 business update, which came in below analysts' estimates.

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DMart Business Update

The company on Tuesday reported a 17.18% improvement in its standalone revenue from operations to ₹13,247 crore, driven by 5% growth in revenue per store to ₹1,565 million and 11% store addition. 

On a sequential basis, revenue grew 8%, led by 5% growth in revenue per store and merely 1% store addition. The revenue growth was 5% below the projections made by brokerage firm Motilal Oswal.

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Motilal Oswal on DMart

"Revenue per sq. ft. saw a moderate growth of 4% YoY. In the last three years, it has remained subdued due to the addition of larger stores and weak discretionary spending. This trend has been gradually reversing for the last 2-3 quarters, which is evident in the reducing gap between revenue per store growth and revenue per sq. ft. growth in the last 3 quarters (revenue per sq. ft. improved from ₹31,807 in 4QFY23 to ₹35,869 in 2QFY24). However, in 3QFY24, the trend was impacted, with revenue per sq. ft. growth at 4% being lower than revenue per store growth at 5%," said the brokerage.

"While the shift in the festive season was expected to benefit, the industry-wide commentary has indicated a persistent slowdown in the discretionary category in 3QFY24, which may still hurt the non-food category (25–30% of revenue). However, softening RM prices should drive demand in the coming quarters," the brokerage added.

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According to the brokerage's monthly price monitor for organised grocery retailers, both offline and online, offline, particularly DMart, remains 10% cheaper for the overall basket. This implies a distinct advantage for value-conscious customers.

Online grocery players, on the other hand, have reached the revenue mark of ₹350–400 billion in the last 2–3 years, equivalent to DMart's size. However, the brokerage notes that their market share gains are predominantly from the unorganised market.

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Apart from weak discretionary demand, larger stores may have seen a slower-than-expected scale-up, and the space provided from the discretionary category is not garnering healthy productivity, it noted.

The brokerage maintains a positive outlook on the stock, notwithstanding the company's Q3 revenue growth falling below its estimates. It retained the 'buy' recommendation with a target price of ₹4,400 apiece.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.