D-Mart rallies 11%, hits new high on healthy operational performance in Q2

ICICI Securities said it continue to remain structurally positive on the stock, however it believes recent appreciation of the stock price factors in most positives.

Shares of Avenue Supermarts, which owns and operates retail chain D-Mart, hit a new high of Rs 5,899.90 as they rallied 11 per cent on the BSE in Monday’s intra-day trade following its quarterly results. The company on Saturday reported a twofold increase in its consolidated net profit at Rs 417.76 crore for the second quarter ended September 2021 (Q2FY22). The company had posted a net profit of Rs 198.53 crore in Q2FY21.

In the past seven trading days, the stock has zoomed 40 per cent from the level of Rs 4,219 touched on October 6, 2021. At 09:29 am, the stock erased most its gains and was up 3 per cent at Rs 5,479.50 on the BSE, as compared to a 0.86 per cent rise in the S&P BSE Sensex.

As guided by the management in its pre-quarterly update, Avenue Supermarts reported revenue growth of 47 per cent year-on-year (YoY) to Rs 7,789 crore during the quarter under review as against Rs 5,306 crore in the corresponding quarter of the last fiscal. The company added eight new stores during the reported quarter.

Revenue per square feet was at Rs 8,400 against Rs 9,216 crore in Q2FY20 (~91 per cent of pre-Covid levels). Owing to positive operating leverage, earnings before interest, tax, depreciation and amortisation (EBITDA) margins improved 240 basis points YoY to 8.6 per cent.

“Covid-19 related lockdown restrictions were eased further during this quarter. Revenue in the DMart stores grew by 46.6 per cent over the corresponding quarter of last year. Two years and older DMart stores grew by 23.7 per cent in the month of September 2021 as compared to September 2020. We have 187 stores that are 2 years or older,” the management said.

The company had accelerated its capex momentum in H1FY22 undertaking capex worth Rs 1,036 crore versus Rs 651 crore in H1FY21. CWIP was at a healthy Rs 1224.6 crore, which indicates a strong store addition pipeline for FY22E, ICICI Securities said in a note.

Inventory increased by around Rs 500 crore in H1FY22, signalling healthy stocking for the upcoming festive demand. The company appears well placed to capitalise on a strong anticipated festive season and a healthy store addition pipeline (~40 stores in FY22) would further augment the revenue growth, going forward, the brokerage firm said. “Though we continue to remain structurally positive on the stock, we believe recent appreciation of the stock price (around 58 per cent in the last three months) factors in most positives,” it added.