The shares of Avenue Supermarts, the company that runs DMart have been on a downfall for the past week, with the stock plummeting as much as 8% to Rs 1,981 on BSE on Thursday. On Friday, the stock fell further to a low of Rs 1,955. This comes after the company reported a 34% drop in revenues for the April-June quarter of FY21. Over the past week, the stock has fallen by over 14%.
The stock also fell below the 200-day moving average of Rs 2,100 for the first time in a year. A 200 DMA is usually used to determine the market trend of a stock’s movement.
On Saturday, the company announced that its Profit after Tax (PAT) fell by a whopping 85.2% to Rs 50 crore due to discretionary spending among consumers reducing significantly. Its Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) saw y-o-y decline of 81.7% at Rs 109 crore. It also saw its earnings per share fall by 86% in Q1 of FY21.
The company didn’t sound optimistic about the future and said that due to various reasons owing to the lockdown, future revenues continue to be uncertain.
The company said that with discretionary consumption being under pressure, especially in the non-FMCG categories, the company’s gross margins were impacted negatively.
DMart said that it wasn’t seeing as many walk-ins because of the strong enforcement of store shutdowns, restrictive movement of people in general and strict social distancing rules inside stores.
“While the overall lockdown rules have softened in general, they continue with the same or more severe intensity in certain cities and local municipalities from time to time. Its negative impact on footfalls and sales were significant,” DMart said.
While muted earnings and an uncertain future due to the pandemic dampened investor sentiment, another reason could also be the imminent competition DMart faces from Reliance Retail and JioMart, as Reliance looks to scale its retail business.
Mukesh Ambani, during the 43rd AGM on Wednesday said that it global investors have shown strong interest in investing in Reliance Retail. He also spoke about the ambitious plans to expand JioMart over the coming weeks, which could pose a threat to DMart, which currently has only a small online presence in Mumbai. With DMart heavily dependent on walk-ins, Reliance’s offline to online model could be seen a significant threat to DMart’s revenues and market share.
Adding to this, brokerages too, didn’t sound optimistic over DMart’s immediate future as walk-ins into supermarkets are most likely to stay low, or even decline further as the number of coronavirus cases in the country continues to rise.
Motilal Oswal Securities alluded to the possibility of a slow recovery, which would extend beyond the first half of this fiscal. It also said that the decline in spends in non-grocery segments could also impact revenues. It maintained a sell rating for the stock, which means that it recommends investors to sell the stock.
Prabhudas Lilladher recommended that investors reduce exposure towards DMart’s stock saying that with most stores facing operational issues, sales would be lower than normal.
Other brokerages such as Kotak Institutional Equities and Credit Suisse too, weren’t upbeat about DMart.
However, Edelweiss and ICICI Securities continue to remain positive about the company’s long-term prospects given its resilient business model.
“We remain positive on DMart’s long-term story, underpinned by deepening penetration, improving market share and demand shift to organised retail,” Edelweiss reportedly said in a recent note.
“Given its resilient business model and healthy balance sheet, we anticipate the company will tide over the current unprecedented scenario,” ICICI Securities said.