DMart shares fall most since listing after Q3 results


The share price of DMart-parent Avenue Supermarts Ltd on Monday dropped over 9%, eroding nearly $1 billion of its market capitalization as many brokerages cut earnings targets after the company reported sharp contraction in its ebitda margin for a second consecutive quarter.

In intraday, DMart shares hit a low of ?1423.40 apiece on the BSE and fell as much as 9.3%, the steepest decline since listing. At 10.05am, the scrip was trading at ?1,442.70 apiece on the BSE, down 8.05% from previous close while benchmark Sensex was trading 0.6% lower at 35,782.78 points.

So far this year, Dmart has fallen 11.5%.

DMart outlook: What the brokerages say

? Brokerage firm Prabhudas Lilladher has cut FY19 and FY20 EPS estimates by 10.7% and 5%.

? Kotak Institutional Equities cut FY2019-20E earnings by 1-4%.

? Jefferies India in a report says, “We cut our revenue estimates by 1%, however on account of lower than expected margins we cut our ebitda for FY19-21 estimates by 4%. Our EPS estimates are trimmed by ~5% for FY19-21E due to higher interest costs and lower other income.”

DMart Q3 results

Avenue Supermarts reported 2.1% increase in its net profit, its slowest December quarter (Q3) profit growth in eight quarters, to ?257 crore against ?252 crore a year ago. Revenue rose ?5,451 crore, up 33.2% from a year ago.

Earnings before interest, tax, depreciation and amortization (Ebitda) margin declined 199 basis points to 8.3% from 10.3% a year ago due to lower gross margin higher operating expenses. Ebitda was at ?453 crore for the quarter. Jefferies India expected Ebitda at ?514 crore while Kotak Institutional Equities expected at ?510 crore.

“Competitive intensity and higher costs led to this slip, in our view”, said Kotak Institutional Equities in a recent report. The brokerage firm has maintained its SELL rating on DMart and revised its target price to ?915 a share.

“December quarter performance highlights that DMart’s business model doesn’t allow for sustainable margin expansion, and any benefits received from companies/distributors would eventually need to be passed on to consumers to drive sales. Revenue growth has been impressive, though would require continuous tweaks to store formats as well as ramp-up of alternate channels such as e-commerce, which for now has been operational only in Mumbai”, the Kotak report stated.

During the December quarter, Avenue Supermarts’s employee expenses rose 24.9% to ?87.93 crore while other expenses jump 45.11% to ?259.63 crore.

Higher operating costs in Q3 were due to longer operating hours to manage festival season and pre-booking of certain expense towards capability building across infrastructure and people, the company’s management said after the results.

“We believe these expenses are primarily on account of significant store additions expected in 4QFY19”, said brokerage firm Antique Stock Broking Ltd in a 14 January note.

Dmart added four new stores during Q3FY19 taking the total count to 164 stores.

Brokerages Antique Stock Broking and Jefferies India expected that the company to add more stores from the year-ago quarter. Antique Broking expect DMart to add 16 stores in 4QFY19 versus 14 stores added in the year-ago period.

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