To DMart, this is nothing unusual. Ask 10 brokerages, all will agree the stock is richly valued. Many doomsayers in the past have predicted a steep fall in DMart shares, but the retail stock kept on flying high.
Since its listing in March 2017, the scrip has in fact delivered 1,873 per cent return so far. The question is, will this time be different.
Edelweiss has downgraded the stock to ‘reduce’ rating as it believes its recent runup and a jump in valuations to 92 times FY23 EV/EBitda have happened without any fundamental change in business prospects.
“The massive opportunity in organised brick & mortar grocery size is factored in, and a further re-rating is now dependent on significant strides in its online grocery operations or a step-up in store addition, neither of which is yet visible,” it said while suggesting a target of Rs 3,782.
HDFC Institutional Equities has an even lower target of Rs 2,700. It said profitability and unit economics were in line, but have not yet caught up with the pre-pandemic levels.
“Lower-than-expected gross margin at 14.3 per cent against our expectations of 14.6 per cent suggests non-essentials’ contribution remains lower than at the pre-pandemic levels (though it is improving). Better cost controls cushioned the impact on Ebitda margin. We maintain our ‘sell’ recommendation on DMart, with a revised DCF-based target of Rs 2,700 a share, implying 35 times December 2023 for the standalone business and 4 times December 2023 sales for Dmart Ready,” it said.
The Rs 2,700 target suggests a 54 per cent potential downside from Monday’s high.
The recent move in the stock has been difficult to explain or justify unless one attributes it to ‘easy money’, said JM Financial, which sees the stock at Rs 3,380.
“Here on, stock would be able to deliver high-single-digit IRR over five years only if it can command over 60 times forward PE even in 2027 (currently at 100 times FY24). At 55 times, which is now quite an ‘acceptable’ consumer multiple, five-year IRR is more likely to be in mid-single-digit,” the brokerage said.
Phillip Capital said it has increased DMart’s revenue estimates by 5 per cent for FY22 and 3.4 per cent for FY23 on stronger than expected revenue recovery and raised its Ebidta estimates by 13.1 per cent for FY22 and 9.9 per cent FY23. Yet, it downgraded the stock to ‘neutral’ with a revised price target of Rs 4,913.
Prabhudas Lilladher (PL), which has been positive on the stock, has cut D’Mart’s rating to accumulate from Buy, despite a 9.2-11.7 per cent upgrade in FY22-24 estimates and increase in DCF based target price to Rs 5,359 from Rs 4,601 earlier. PL’s targte suggest no upside
“While we continue to believe Avenue Supermarts is best placed to play the unorganised to organised shift in grocery vertical and believe it has best in industry business model, steep run-up in stock price leave little room for upside and hence we wait for better entry points,” it said.
Motilal Oswal, too, has a similar view. It sees D’Mart ay Rs 4,900. The stock trades at rich valuations of 77 times EV-to-Ebitda and 122 times P/E on FY23, it said.
