June has proven to be a strong month for Avenue Supermarts (DMart) as its stock surged by approximately 10%, marking a notable rebound following a decline of 6.5% in May.
DMart saw its stock rise by 21% over the three-month period from February to April. However, the year started on a slightly negative note for DMart, with a 7% drop observed in January.
The fluctuating trends in DMart’s stock reflect the dynamic market conditions and investor sentiment surrounding the retail sector. The recent recovery in June suggests renewed investor confidence, possibly driven by strong operational performance or favorable market developments. As DMart continues to navigate through market challenges and capitalise on growth opportunities, its performance remains closely watched by market participants and analysts alike.
Overall, the stock has added 25% in the last 1 year and over 15% in 2024 YTD.
In June 2024, DMart reached its 52-week high of ₹5,220, reflecting strong investor interest and positive market sentiment. Conversely, the stock touched its 52-week low of ₹3,493 in August 2023, highlighting a period of market volatility or challenges for the company. As of now, the stock is trading approximately 10 percent below its year-high, indicating a potential for further upside. Moreover, from its lowest point in the past year, DMart has shown a remarkable recovery, gaining 35 percent, which underscores its resilience and ability to rebound from market downturns.
Over the long term, DMart has demonstrated strong growth, with its stock surging by over 41% in the last 3 years and an impressive 237% in the last 5 years.
Earnings
In the March quarter, DMart reported a significant 22% year-on-year increase in net profits, rising from ₹460.1 crore in Q4FY23 to ₹563.1 crore. However, sequentially, there was an 18% drop in net profit from ₹690.7 crore in the previous quarter (Q3FY24).
Revenue from operations saw a healthy 20% Y-o-Y increase, reaching ₹12,726.5 crore in Q4FY24 compared to ₹10,594 crore in Q4FY23. However, there was a 6% Q-o-Q decline from ₹13,572.4 crore in Q3FY24.
DMart’s EBITDA for Q4FY24 stood at ₹944 crore, up from ₹772 crore in Q4FY23, with an EBITDA margin of 7.4% compared to 7.3% in the same quarter last year.
The strong performance of DMart’s stock in the long term prompts the question: will this momentum continue for the retail chain? Here’s the analysis from both technical and fundamental experts:
Technical View
Om Mehra, Technical Analyst, SAMCO Securities
The stock shows a pattern of higher highs and higher lows, signalling a continued uptrend. In the longer term, it’s breaking out of a Flag Pattern, which is a bullish signal. The stock trades above its 20-day and 50-day moving averages (DMA). The bullish outlook is supported by strong volume participation, a price surge, and increasing delivery volumes. There’s a minor resistance around ₹5,020 levels; surpassing this could lead to further upward movement.
Hence, based on the above technical structure, one can initiate a long position at CMP ₹4,900.10 for a target price of ₹5,340. The stop-loss can be kept at ₹4,700.
Rajesh Palviya, SVP at Axis Securities
On the weekly timeframe, the stock continues to extend its rally forming a series of higher tops and bottoms formation, indicating short and medium-term bullish trends. Currently, the stock is well placed above its 20, 50, 100, and 200-day SMA and these averages are inching up along with a price rally, which reconfirms a bullish trend. The prices have recaptured its 30-week SMA (4135) and rebounded sharply. Since November 2021, the stock has strongly consolidated in a “rounding bottom” formation with a breakout zone of 5,200-5,300 levels. The short-term support zone is placed around 4,650, and the major support zone is placed around 4,300-4,250 levels. On the upside, the stock is expected to scale towards 5,300-5,500 levels in the upcoming month. The monthly strength indicator RSI is bullish, quoting above 50 levels, indicating a rise in strength over a larger time frame.
Gaurav Bissa, VP, InCred Equities
DMart was seen consolidating in a range for the last two years which was then followed by a breakout a few months back which resulted in a strong move towards 5,000. While the overall trend remains positive, the prices are stuck in the range and a fresh upmove is possible on a close above 5,200 levels which can then push the price towards 6,000.
Rohan Shah – Technical Analyst, Religare Broking Ltd
DMart has ended its corrective phase after a decisive breakout from the multi-month consolidation with strong volumes. After the breakout, the stock has been trading sideways in range, witnessing a price and time-wise correction. The volume activity within the range is quite robust, as, on a positive day, the volume has been above average, suggesting accumulation by the stronger hands. Thus, we believe the ongoing consolidation is likely to end soon, and the price will head higher toward the 5,100 and 5,300 levels.
Fundamental View
Morgan Stanley has issued an ‘overweight’ call on the stock, setting a target price of ₹5,123 per share. The international brokerage highlighted that the competitive environment in the online grocery sector remains robust, exemplified by Amazon Fresh’s expansion plans from 60 cities to 130 cities. In a notable development, JioMart has overtaken DMart’s online service, DMart Ready, in product discounting strategies. Meanwhile, BigBasket maintains a lead over DMart Ready in terms of SKU availability. Both JioMart and DMart Ready are experimenting with faster delivery services, indicating a focus on improving customer experience and operational efficiency, according to Morgan Stanley.
Overall, Morgan Stanley’s positive outlook on the stock is bolstered by these developments in the online grocery sector. The brokerage believes that the competitive landscape, characterised by aggressive expansion, pricing strategies, and improved service delivery, will drive growth and profitability for the leading players.
Meanwhile, ICICI Securities has retained an ‘ADD’ rating on DMart with a revised target price of ₹5,400, up from the previous target price of ₹5,000, based on a Discounted Cash Flow (DCF) analysis. It believes, DMart’s core USP of cost-leadership-led value offering remains intact in both online and offline whereas disruption created by the rise of quick commerce is restricted to few (densely populated cities) and is not impacting DMart much. ICICI has maintained its earnings estimates for DMart for FY25E and FY26E, projecting a Compound Annual Growth Rate (CAGR) in revenue, EBITDA, and PAT of 23 percent, 27 percent, and 27 percent respectively over FY24-26E.
Key downside risks include higher-than-expected competitive intensity in both the food and non-food segments, as well as a slower turnaround of its e-commerce operations. Conversely, a key upside risk would be a significant improvement in the recovery of general merchandise and apparel sales.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
