Shares of Avenue Supermarts, which operates retail chain D-Mart, have declined by 2.32 per cent on the NSE, trading at ₹3,844.35 as of 1 pm on Monday, after the company reported a 9.09 per cent fall in consolidated net profit for the second quarter ended September 30.

Earlier, the stock fell over 4 per cent to ₹3,771.70 on the BSE; declined 4.14 per cent to ₹3,772.75 on the NSE in the morning trade on Monday. However, most brokerages have retained their buy rating on the stock.

JM Financial has increased the target price to ₹4,500 from the previous ₹4,255, stating that the September quarter report was broadly on expected lines. Meanwhile, Motilal Oswal Financial Services observed that the revenue growth was mainly led by 11 per cent y-o-y store additions. “However, revenue/sqft that remained a laggard has seen a recovery and improved 6 per cent y-o-y during the quarter. This indicated higher contribution from the larger-sized stores,” it reported.

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Motilal Oswal noted that the company has managed to protect its EBITDA margin at pre-covid levels through its strong cost-control measures despite its weak SSSG. “We have cut our FY24E PAT by 4.6 per cent on slower recovery in 1HFY24E but expect gradual improvement from 2HFY24E factoring in a revenue/PAT CAGR of 25 per cent/26 per cent over FY23-25 aided by 16 per cent/8 per cent growth in footprints/revenue productivity,” the brokerage reported. 

JM Financial report stated that the weaker mix on account of lower contribution from general merchandise and apparel (23.2 per cent revenue share in 1HFY24 as against 24.8 per cent in 1HLY) led to lower gross margin, but lower salience itself does not seem to explain the entire fall in gross margin against the year-ago level.

Remaining positive, Prabhudas Lilladher retained their BUY rating and increased DCF based target price to ₹4,724 from the earlier ₹4,576. Noting that the general merchandise and apparel remains under pressure in 2024, the report said that the merchandise is fast catching up towards pre covid levels, while apparel loss seems structural as value formats like Zudio and Reliance Trends have reduced the consumer appeal of Hypermarts.

“We believe worst seems nearly over and food and grocery segment is expected to drive a rebound in sales and profit growth in coming quarters,” Prabhudas Lilladher report said.

JM Financial believed that the management is likely re-working the Apparel portfolio itself, which could have had some impact on Discretionary margin per se. It highlighted that the employee costs grew (over 20 per cent y-o-y) at a faster pace than topline but was made up by good control over other expenses (rising 16.7 per cent y-o-y).

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