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RK Damani’s DMart Shares Rise As Company Reports Six-Fold Surge in Profit; Should you Buy?

Radhakishan Damani promoted firm, Avenue Supermarts (DMart) shares jumped almost 4 per cent to Rs 4,091.9 per share on the BSE intraday trade on Monday after the company reported a six-fold surge in profit and revenue almost doubled during the first-quarter earnings of the financial year 2022-23 (Q1FY23). The DMart operator on July 9 reported a massive 490 per cent year-on-year growth in standalone profit for the quarter ended June. The standalone profit jumped to Rs 680 crore during the June quarter, up from Rs 115 crore in the corresponding period last fiscal. Sequentially, the profit rose nearly 46 per cent. Standalone revenue from operations grew 95 percent year-on-year to Rs 9,807 crore during the quarter ended June. On a sequential basis, revenue growth stood at 14 per cent.

Should Investors Buy, Sell or Hold DMart Shares?

IDBI Capital maintained a Buy rating with a target price of Rs 4,571 per share, which implies a 16 per cent upside. The brokerage has marginally adjusted EPS estimates upwards by 3-4 per cent during FY23-24E as it expects a better revenue mix from the modern large-size stores.

The company is a consistent compounder with the stock price increasing at 35 per cent CAGR in the last five years and continues to remain India’s most profitable low-cost retailer, a strong play on India’s retail growth story, domestic brokerage firm ICICI Direct said in its Q1 review note.

The brokerage maintained a Buy recommendation on the stock with a target price of Rs 4700 per share (19 per cent upside) from Rs 4,530 per share i.e. 5.5x FY24E EV/Sales. It said the results were a comprehensive beat on the profitability front driven by sustained improvement in product mix.

Prabhudas Lilladher, said that “We are increasing FY23/24 earnings per share (EPS) estimates by 6.3/6.5 per cent and target price to Rs 4,636 (Rs 4,340 earlier) following strong sales and profit momentum. Zero impact of Covid led to a normal quarter as the company monetised 110 large stores opened in the last three years.”

“Although gross margin and core profit margins trended towards the first quarter of 2020, given seasonality they can’t be extrapolated and should normalise over the course of the year. We estimate 31 per cent year-on-year profit after tax growth for the balance three quarters of 2022-23 and 47.3 per cent profit after tax compound annual rate over FY22-24. We retain buy with DCF based target price of Rs 4,636; returns might be slightly back-ended given 17 per cent jump in stock price in the last 5 sessions,” they added.

Meanwhile, Motilal Oswal said DMart’s strong growth footprint and cost optimization led to a healthy EBITDA/PAT CAGR of 19 per cent/26 per cent, however, revenue/sq. ft. remains under pressure due to the impact of inflation on the Discretionary category and higher store sizes.

The brokerage factor in a strong FY22-24E EBITDA/PAT CAGR of 37 per cent/50 per cent, with a 17 per cent footprint CAGR, and cognizant of the prominence of new age grocery models, rich valuation, and weak revenue per sq. ft. in the last few quarters. It gives a Neutral stance with a target of Rs 3,500 apiece.

Disclaimer: The views and investment tips by experts in this report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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