Radhakishan Damani- backed Dmart shares drop 5% on Covid-19 warnings

Mumbai: Shares of Radhakishan Damani-backed Avenue Supermarts slumped nearly 5 per cent on Tuesday, after the company warned that challenges are likely to continue in this financial year, as the economy gradually opens up after the lockdown. The company reported a 42 per cent rise in March quarter net profit over the weekend.

In its earnings announcement on Saturday, the company that owns and operates supermarket chain D-Mart, said it expects significantly large Ebitda declines due to lower sales, lower gross margins, higher cost of operations on account of hardship allowance to frontline staff during lockdown and higher personal hygiene/store sanitation costs.

At 09.37 am, Avenue Supermarts shares were down 4.48 per cent at Rs 2,294.90, while BSE’s 30-share Sensex was up 1 per cent at 30,979.15 points.

D-Mart shares have strongly outperformed the broader market this year, and are up 24.58 per cent year to date, while Sensex is down 24.9 per cent. Over the last one year, the shares have jumped 71.3 per cent, even as Sensex declined 21.44 per cent .

For now, brokerages were downbeat on the company’s near-term prospects.

ICICI Securities has downgraded the stock to “reduce” from “hold”. The brokerage said it sees headwinds to Avenue Supermarts’ revenue growth potential in FY2021 due to low inflation, lower store throughput, revival of Kiranas, acceleration in adoption of online ordering.

“Profitability is also likely to be impacted by inferior product mix, higher operational cost (hardship allowance to employees, hygiene and sanitation costs) and negative operating leverage,” the brokerage said. “Although we believe Avenue Supermarts will benefit from Indian food & grocery retail opportunity, the current outperformance builds in best outcomes.

Motilal Oswal maintained its 'sell' rating on the stock. The brokerage cut its Ebitda estimate by 16.8 per cent for FY21E due to 50 per cent of stores being closed over April–May, lower gross margins from increased non-discretionary revenue, and higher opex, but maintained its FY22 Ebitda estimates given the sharp recovery expectation as it pertains to nondiscretionary.

Prabhudas Lilladher, too, maintained a 'reduce' rating on the stock.

“We are cutting FY21 and FY22 EPS estimates of D’Mart by 16.8 per cent and 8.1 per cent due to 1) Lockdown impact on footfalls/sales 2) higher cost of operations 3) delay in store openings and safety cost,” the brokerage said in a note.