DMart shares down over 40% from all-time high: Buy on the dip?

Avenue Supermarts share price history

The shares of Avenue Supermarts closed on the NSE at ₹3,390.00 apiece level, down by 1.37% from the previous close of ₹3,437.15. The stock recorded a total volume average of 3,55,089 shares compared to the 20-Day average of volume 251,548 shares. The stock recorded NSE + BSE volume average of 386,727 shares and a deliverable volume average of 23,717,967 shares or 61.33%. The stock had a record high of ₹5,900.00 in 2021, and as of now, it has dropped 42% on the current market. 

Since its NSE IPO on March 21, 2017, the stock has appreciated 449.52%, setting a record high. The stock has risen about 55% over the past three years and delivered a multibagger return of 159.46% over the past three years. The stock price has dropped 16.76% YTD and 17.25% over the past year, respectively. It has plummeted 22.71% over the past six months and 2.64% over the past month. During its last 5 trading sessions the stock has fallen 1.89%. The stock touched a 52-week-high of ₹4,609.00 on (02-Sep-2022) and a 52-week-low of ₹3,186.00 on (16-May-2022)..

Avenue Supermarts earnings

Total revenue for the quarter ending December 31, 2022, as reported on a consolidated basis, was Rs. 11,569 crore, up from Rs. 9,218 crore during the same period in the previous year. EBITDA margin was 8.3% in Q3FY23 compared to 9.4% in Q3FY22, and earnings before interest, tax, depreciation, and amortisation (EBITDA) were Rs.965 crore in Q3FY23 as opposed to Rs.866 crore in the same quarter of FY22. 

The company stated its net profit amounted to Rs.590 crore for Q3FY23, as opposed to Rs. 553 crore in Q3FY22 and PAT margin stood at 5.1% in Q3FY23 as compared to 6.0% in Q3FY22. Basic Earnings per share (EPS) for Q3FY23 reached Rs. 9.10, as compared to Rs. 8.53 for Q3FY22.

Should you buy on the dip?

Rahul Ghose, Founder & CEO – Hedged said the Dmart stock which has fallen almost 50% from its highs. Of late, its non-FMCG and discretionary businesses are not doing well. It has seen its valuations also being re-rated owing to its subdued outlook as markets seem to be worried that it would not be able to add stores at the pace that it had outlined and the EBITDA margin pressures owing to the inflationary impact on its input prices would prevail. Having said all that, the DMart stock or Avenue supermarkets as we know it is looking good on the charts and with this fall has become undervalued from a medium term perspective. First, the stock is at a quarterly and monthly support area around the INR 3200-3300 levels.

“Next, the momentum indicators on the weekly chart seem to be rising even though the stock is seen going down implying that the downward momentum is coming to a halt. Third and last, the stock has come close to lower Bollinger Band on the monthly time-frame and is also taking support at the lower band of the Donchian channel. One can look to buy the stock once it settles above the INR 3500 level and above its 20 EMA which is around price target of INR 3790 and INR 4000 depending upon their individual holding time frames. Also, if someone has a longer time horizon in mind and a larger appetite from a risk-to-reward perspective, one can look for higher targets on this stock,” said Rahul Ghose.

Ravi Singhal, CEO, GCL Broking said as we can see the stock is more than 32% down from peak many factors behind that are:

1. Revenue per sqft significantly coming down

2. New store add on is very less due to conservative approach of management

3. Competition with big players like Reliance retail and tata big basket

4. GM&A contribution decreased due to high inflation which causes decline in margin to dec quarter lows even in festive season

5. Quick service online players like zepto, blinkit,swigymart extra also giving competition

6. Technically also stocks looks weak stock is trading below 500 and 200 dema

Now, what should investors do?

Buy on dips near ₹3000 as there 1000 dema lies as well reasonably valued also. So buy near ₹2900 to ₹3000, stoploss to maintain ₹2788 and the target price set is ₹4000 in next 1 year, said Ravi Singhal.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.