DMart’s 110% rise in net profit fails to impress traders; analysts see massive downside

Avenue Supermarts has reported a 110% profit progress
(Image: REUTERS)

Radhakishan Damani’s Avenue Supermarts reported a robust 110% rise in net profit in the July-September quarter however failed to impress traders because the stock tumbled greater than 5% on Monday morning. Analysts too had been unimpressed, advising traders to promote the stock, predicting downside potential and highlighting extraordinarily costly valuations. DMart share worth initially hit a excessive of Rs 5,899 apiece however quickly slipped from the highs and was sitting close to an intra-day low of Rs 5,014 per share. So far this year, DMart’s share worth has galloped a whopping 85%.

Too costly

Analysts have highlighted DMart’s costly valuations. The stock’s current run-up and valuation (92x FY23E EV/EBITDA) have occurred with none basic change in business prospects, mentioned Edelweiss Securities. “The massive opportunity in organised B&M grocery size is factored in, and a further re-rating is now dependent on significant strides in its online grocery operations or a step-up in-store addition, neither of which is yet visible,” they added.

Although the business has grown regardless of the challenges posed by the pandemic, ICICI Securities mentioned that the extraordinarily costly valuation limits their willingness to have a constructive view. Avenue Supermarts trades at 128x P/E on FY23E, in accordance to their estimates.

Time to promote?

Motilal Oswal: Analysts at Motilal Oswal have a ‘Neutral’ score on the stock and have revised their goal worth upwards. However, regardless of the revision, the brand new goal worth implies a 6% downside potential. “Unlike other retail categories, grocery retailers such as DMart have seen a limited impact and swift recovery from Covid-19, with healthy margin improvement,” they mentioned. The goal worth has been set at Rs 4,900 per share. 

ICICI Securities: The brokerage agency has downgraded the stock to ‘Sell’ score from the earlier ‘Reduce’ with a goal worth of Rs 4,000 per share. “We downgrade the stock to SELL (from REDUCE) with a DCF-based revised target price of Rs 4,000. Key upside risks are fast turnaround of e-commerce operations and lower-than-expected competitive intensity,” they mentioned. The brokerage agency has maintained that the earnings efficiency was good, nonetheless, the costly valuations have restricted their view on the stock. The goal worth interprets to 20% downside potential.

Edelweiss: Analysts at Edelweiss have the bottom goal worth set for the stock at Rs 3,782, which has been revised upward from Rs 3,211 earlier. The brokerage agency has downgraded the stock to a ‘Reduce’ score from ‘Hold’ earlier on the again of the current run-up in valuations. DMart is predicted to take its retailer depend to 274 by the top of this monetary year. 

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