Radhakishan Damani-Backed DMART Shares Rally 5% As Q2 Revenue Growth In-Line With Estimates; Buy?

Ace Investor Radhakishan Damani-backed DMART shares were on a streak of success during Wednesday's trading session by skyrocketing over 5% on BSE. This largest retail stock witnessed an increase of over Rs 12,180 crore in its market value as well. The reason behind the robust rally in DMart is because of its strong revenue growth in the September 2023 quarter of FY24. In three years, DMart's revenue has surged by a massive 136%.

At the time of writing, DMart shares traded at Rs 3,883.30 apiece, up by a whopping Rs 160.80 or 4.32% on BSE. So far in the day, the stock has gained as much as 5.03% with an intraday high of Rs 3,909.90 apiece.

As per the regulatory filing, DMart posted a revenue of Rs 12,307.72 crore in the quarter ending September 30, 2023, rising by 18.52% from revenue of Rs 10,384.66 crore a year ago same quarter. In three years, DMart's revenue has soared by 135.86% from revenue of Rs 5,218.15 crore in the September 2020 quarter.

The total number of stores as of September 30, 2023 stood at 336.

This a provisional data and the main financial results for the September 2023 quarter will be announced soon.

DMart's revenue growth was in line with Motilal Oswal's estimates. The brokerage in its note said, "Revenue per sqft, which remained subdued in the recent past mainly due to the addition of larger store sizes and weak discretionary spending, is now seeing a pick-up. It is evident from the reducing gap between the revenue/store growth and revenue/sqft growth in the last three quarters (revenue/sqft improved from Rs 31,807 in 4QFY23 to Rs 35,869 in 2QFY24)."

Motilal believes the improvement in revenue per sqft indicates an improved contribution from larger stores. Also, the industry-wide commentary has indicated a persistent slowdown in the discretionary category in 2QFY24, which may be still hurting the nonfood category (25-30% of revenues). However, Motilal said it is expected to improve in 3QFY24 with the onset of festive demand.

On store addition, Motilal's note said, "The company added 9 stores in 2QFY24 (vs. 8 stores added in 2QFY23), taking the total count to 336 stores. It added 12 stores in 1HFY24." Adding it said, "We expect the company to add 40 stores in FY24, with a majority of them being added in 2HFY24, which is in line with its historical trend."

Motilal Oswal has recommended buying DMart shares.

Also, Kotak Institutional Equities believes that 2QFY24 revenue print indicates improving throughput. It added, "Dmart's 2QFY24 standalone revenue of Rs123.1 bn implies revenue growth of 18.5% yoy and 6.2% sequentially. Yoy revenue growth of 18.5% is modestly better than the 18.1% yoy posted in 1QFY24 and provides comfort to our 20% yoy consolidated revenue growth projection for FY2024E. Further, after posting unimpressive throughput per sq. ft figures for the past two quarters, the ~Rs36k/sq. ft figure for 2QFY24 is encouraging. Store addition of nine in 2QFY24 and 12 in 1HFY24 is tepid in the context of our store addition target of 55 for FY2024E."

Further, Kotak's note said, "Over the past few quarters, Dmart has been trying new initiatives: (1) Sale of fast-moving eatables such as pizza from store premises, (2) in-store pharmacy, (3) smaller formats such as Dmart Minimax in Mumbai-MMR region, and (4) rejig of general merchandise offering in favor of faster-moving SKUs. We model 21% consolidated revenue CAGR over FY2023-26, which bakes in some success from these new initiatives, although store addition will have to tally up to keep pace with our growth forecasts."

According to Kotak, the stock at 68X FY2025 P/E is adequately baking in both revenue and margin recovery. However, the brokerage has given a 'Sell' rating with a fair value of Rs 3,475 apiece on the stock.

Damani publicly holds 14 stocks whose net worth together is over Rs 1.76 lakh crore, as per Trendlyne data. But his largest shareholding, a little over 96% of the total portfolio, is in the grocery store brand DMart he founded in 2002. On October 4th, DMart's market cap crossed over Rs 2.54 lakh crore, and Damani's shareholding in the stock is valued to nearly Rs 1.70 lakh crore. This grocery retail chain has definitely made Damani a billionaire!

Disclaimer:

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