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Broker's Call: Sell Avenue Supermarts - The Hindu BusinessLine


Broker’s Call: Sell Avenue Supermarts
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Updated on
CMP: ₹2979.75
DMart has finally hit the growth phase after a disappointing H1FY21. The grocer clocked a healthy 10 per cent top-line growth (versus HSIE expectation of 8.5 per cent). While the gross margin delivery was strong (15.1 per cent vs HSIE’s 14.8 per cent), its underpinnings remain weak (on the back of lower discounting in staples).
We suspect lower discounting levels in staples (200-400 bp lower) continue to cushion the adverse margin impact of lower non-essential sales.
While DMart remains best-placed within its peers to carve out a recovery, it’s still not out of the woods. An extended slump in non-essential sales could mean that discounting in staples will be lower, thereby opening up the space for competition. This, coupled with punchy valuations (FY23 P/E: 75x+), leaves no margin of safety/error for the investor and the business. Non-essential sales remain weak. EBITDAM expanded 52/ ....

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