Should you invest in Radhakishan Damani's D-Mart post-stellar Q1 results

Avenue Supermarts, which owns and operates retail chain D-Mart on Saturday reported a jump of 132% standalone net profit at Rs 115.13 crore for the quarter ended 30 June 2021. The company had posted a net profit of Rs 50 crore in the year-ago period.

Standalone revenue from operations rose 31.27% to Rs 5,031.75 crore for the quarter ended June 30. The company had revenue from operations of Rs 3,833.23 crore in the April-June quarter a year ago, Avenue Supermarts informed the BSE in a regulatory filing.

At 11:50am the shares of the company traded at Rs 3342.00 apiece, down 1.09% from its previous close, while the benchmark Sensex was at 52,625.78, up 239.59 points or 0.46%.

Total expenses in the quarter were Rs 5,077.22 crore as against Rs 3,875.01 crore in April-June 2020-21.

At the operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) increased 103.2% to Rs 221.22 crore in June 2021 quarter YoY. Margin expanded 155 basis points to 4.39% during the quarter, compared to the year-ago period.

“Q1 FY 2021-22 saw a much stronger second wave of COVID-19 restrictions. We lost significantly more days or had a higher restriction on a number of hours of store operations compared to the same period last year,” Avenue Supermarts CEO & Managing Director Neville Noronha said.

At 10:00 am shares of the company were trading 1.12% or Rs 37.95 lower at Rs 3,341. Here is what brokerages have to say about the company’s performance.

Prabhudas Lilladher | Rating: Buy | Target: Rs 3,686

Despite near term challenges Prabhudas Lilladher is optimistic about the long term potential of D-Mart on the back of increasing scale and scope DMart Ready, extending offerings on DMart ready app to include general merchandise, fresh food and vegetable, growth in general merchandise sales over the lower base, everyday low-value focus and steady store expansion plans.

It believes that bill cuts/store/day will normalize once the lockdown related restrictions minimize however the bill value is expected to remain higher than pre covid levels due to the inflationary environment. This should lead to 42.3% PAT (profit after tax) CAGR (compounded annual growth rate) over FY21-25. However, the 3rd Covid wave in festival season is a key near term risk.

Motilal Oswal | Rating: Neutral | Target: Rs 3,220

While Motilal Oswal expects D-Mart to deliver FY20-23E revenue/PAT CAGR of 24% each, factoring in 30/40 store additions and 50% SSSG (same-store sales growth) in FY22E/FY23E. Unlike other retailers, grocery retailers like DMart have seen a swift recovery once COVID related restrictions were lifted and a healthy margin improvement.

Expensive valuations; risk of a moderation in growth, owing to strong traction for online retailers in a post-COVID world; and the presence of deep pocket players like Amazon and Reliance Retail restricts the near-term upside.