New Delhi: The share price of DMart witnessed a decline of nearly 4% to ₹3,940 per share after the release of the Q3FY24 business update, which fell short of analysts’ expectations. Despite the broader Indian benchmark indices approaching record highs, certain large-cap stocks, including Avenue Supermarts, the operator of the DMart retail chain, have struggled to gain momentum over the past two calendar years.
In its latest report, the company disclosed a 17.18% improvement in standalone revenue from operations, amounting to ₹13,247 crore. This growth was fueled by a 5% increase in revenue per store to ₹1,565 million and an 11% expansion in the number of stores. On a sequential basis, the revenue showed an 8% increase, with a 5% rise in revenue per store and a mere 1% addition to the number of stores. However, this performance was 5% below the projections made by Motilal Oswal, a brokerage firm.
The company’s revenue per sq. ft. exhibited a moderate 4% year-on-year growth. Over the past three years, this growth had been subdued due to the addition of larger stores and weak discretionary spending. While this trend had been gradually reversing in the last 2-3 quarters, the Q3FY24 results were impacted, with revenue per sq. ft. growing at 4%, lower than the 5% growth in revenue per store. The brokerage highlighted that the shift in the festive season was expected to benefit the company. Still, industry-wide commentary indicated a persistent slowdown in the discretionary category in Q3FY24, potentially affecting the non-food category, which constitutes 25–30% of revenue. However, the brokerage anticipated a positive impact in the coming quarters due to softening raw material prices.
Despite the challenges, the brokerage maintained a positive outlook on DMart’s stock and retained a ‘buy’ recommendation with a target price of ₹4,400 per share. The report acknowledged that DMart, particularly offline, remains 10% cheaper for the overall basket in comparison to other organized grocery retailers, both offline and online. It emphasized that online grocery players have achieved significant revenue milestones in the last 2–3 years, equivalent to DMart’s size. Still, their market share gains have primarily come from the unorganized market.
The challenges cited in the report include weak discretionary demand and a slower-than-expected scale-up of larger stores, with the space allocated for the discretionary category not yielding healthy productivity. Despite these concerns, the brokerage expressed confidence in the stock’s long-term prospects.
