Grocery chain, DMart reported a muted show in the first quarter of FY24 with earnings before interest, tax, depreciation and amortisation (EBITDA) being 10 percent below consensus estimates. This was driven by 120 bps decline in gross margins of 14.6 percent, attributed to a lower mix of general merchandise and apparel.
Revenue/sq.ft grew 4 percent year on year to Rs 34,400, but is still below the pre-pandemic levels. The store openings have also slowed down to 3 in the June ended quarter.
DMart is down 5 percent in the past one year and 8 percent since start of this year.
Should investors look at buying the stock?
During FY12 to FY20, DMart sustained consistent same store sales growth above 15 percent. However, that has come off with older stores maturing. The company now faces increased competition from other E-Commerce players.
Abneesh Roy, Analyst at Nuvama institutional Equities says "from a two years perspective, this is a good compounding story." DMart is seen as a good proxy to the overall consumption compounding story. Roy adds "there is a huge runway to add stores in states, other than Gujarat and Maharashtra."
Roy says "DMart is a good long term story, but will face near term pressure." The stock currently trades at Rs 3,740 on NSE and Nuvama has 'hold' rating with a target price of Rs 4,015.
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