DMart shares plunge sharply to 8% after surging to record high

In Monday’s afternoon session, shares of DMart’s parent Avenue Supermarts fell as much as 8% to Rs.4,993, after briefly touching a record high in early trades following the company’s announcement of a considerable increase in its consolidated net profit for the second quarter of the current fiscal year.

Avenue Supermarts, which owns and manages the retail chain D-Mart, announced on Saturday that its consolidated net profit for the second quarter ended September 2021 increased by two-fold to Rs.417 crore. In the July-October quarter of the previous year, the company made a net profit of Rs.198.53 crore.

The stock soared to a new high of 5,899.90 on the BSE after opening at 5,640. The gains were fleeting, as the stock began to plummet, hitting a low of 4,850.10 before finishing at 4,894.90, down 8.16 percent from the previous day’s close. It ended the day 7.6% lower at 4,920 on the NSE.

During the quarter under review, revenue from operations increased by 46.79 percent to Rs.7,788.94 crore, compared to Rs.5,306.20 crore in the previous fiscal.

Avenue Supermarts’ revenue from operations for the period was Rs.7,649.64 crore, up 46.6 percent from the second quarter of 2020-21’s Rs.5,218.15 crore.

Relaxing covid-19 limitations attracted more customers, resulting in a 47 percent increase in revenue. During the quarter, the Mumbai-headquartered company opened eight new stores.

In early trading, the stock jumped as much as 11% to a new high of Rs.5,900. However, the stock gave back its gains in the afternoon trades, as multiple brokerages warned that the stock’s upward potential was limited due to its high valuation.

Dmart’s Q2 revenue increase is in line with expectations, according to HSBC Global. “The recovery is gaining traction at a rapid pace. This momentum also demonstrates Dmart’s business model’s resiliency and ability to thrive despite challenges,” the company noted.

DMart’s sales increase of 5% was ahead of forecasts, according to Goldman Sachs, which maintained a Buy rating and a revised price target of 4,539. “We believe the revenue beat was influenced by a better footfall rebound during the quarter when lockdown limitations were relaxed.”

The stock was given a Sell rating by domestic firm ICICI Securities, with a target price of 4,000 rupees.

Unlike other retail sectors, supermarket retailers like DMart have suffered little impact from Covid-19 and have recovered quickly, with a high profit improvement.

However, the stock is trading at rich valuations.