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Radhakishan Damani portfolio: HDFC Securities sees big downside in this stock

Radhakishan Damani portfolio: DMart’s anchor variable (footfalls/sales density) remains suboptimal vis-à-vis pre-pandemic days (partly attributable to the step-up in store additions), reports HDFC Securities.Premium
Radhakishan Damani portfolio: DMart’s anchor variable (footfalls/sales density) remains suboptimal vis-à-vis pre-pandemic days (partly attributable to the step-up in store additions), reports HDFC Securities.

  • Radhakishan Damani portfolio: We maintain our SELL recommendation on DMart shares with a revised DCF-based target price of 2,800 shares, says HDFC Securities

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Radhakishan Damani portfolio: Third quarter result for FY 2021-22 of Avenue Supermart or DMart has come out as huge disappointment stock market analysts and brokerages. The retail corporation founded by Radhakishan Damani in 2002 has reported jump in its total income from 7,682.63 crore in Q2FY22 to 9,097.33 crore in Q3FY22. However, this rise in total income got nullified as the retail corporation that operates a chain of hypermarkets in India reported huge rise in its expenses in the same period. 

DMart's Q3 FY2021-22 total expenses surged to 8,196.83 crore from 6,979.49 crore in Q2FY22. In Q3FY21, total expenses of the company were at 6,741.32 crore whereas its total income in Q3FY21 was at 7,481.89 crore.

This rise in total expenses of the company both on year-on-year (yoY) and Quarter-on-Quarter (QoQ) basis hasn't gone down well at HDFC Securities. The brokerage has expressed disappointment over the third quarter result of the company has given 'sell' tag to Avenue Supermart shares. They said that DMart disappointed on its Q3FY22 revenue/unit economics print. Revenue grew 22 per cent YoY but sales density is yet to hit the pre-pandemic level (91% of Q3FY20).

On DMart share price outlook, HDFC Securities says, "DMart’s anchor variable (footfalls/sales density) remains sub-optimal vis-à-vis pre-pandemic days (partly attributable to the step-up in store additions). While we factor in a full recovery in the next 2-3 quarters, this assumption can be challenged by heightened competitive intensity from deep-pocketed retailers."

"Sales density is still around 9 per cent shy of DMart’s typical run rate (partly attributable to pick-up in store additions). Revenue mix remains essentials heavy; ergo, lower-than-expected GM (14.9 per cent against HSIE: 15.1 per cent). Better cost control cushioned the impact on EBITDAM (9.6 per cent, up 28bps; HSIE: 9.8 per cent). The retailer added 17/29 stores in Q3/9MFY22 (store count: 263). Channel checks suggest that pricing aggression by peers remains elevated," brokerage said.

On its suggestion to stock market investors in regard to Avenue Supermart shares, HDFC Securities says, "We maintain our SELL recommendation on DMart shares with a revised DCF-based target price of 2,800 shares."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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