Rich valuation, competitive intensity, and margin pressures have dragged the shares of D-Mart parent Avenue Supermarts down 8 percent in the last one year but ace investors like Madhusudan Kela and N Jayakumar remain very bullish on the story.
"D-Mart is one of the biggest success stories in the Indian capital market. If one bought the stock in IPO and post listing, he or she would have made tonnes of money," Kela said in an interview with Moneycontrol.
He went on to add that it is unfair to look at the last 12-month performance of D-Mart and conclude that it is not a good company. "Every company goes through a period of consolidation and muted returns and D-Mart might be going through the same period."
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N Jayakumar of Prime Securities believes consolidation is a great time to buy into such great businesses. "D-Mart can very well turn into a big patakha (cracker) next year," he said. "Every D-Mart store is a success story and the company is seeing increasing footfalls across the country."
Why the recent underperformance?
Margins of Avenue Supermarts have been under pressure due to a lower contribution from high margin products like general merchandise and apparels. The company continues to face competition in its apparel business from players like Trent which operates Zudio. The company’s operating profit margins have remained stagnant at 7-9 percent since 2017.
“D-Mart is not showing any relative strength or momentum, but when it does, probably then we can pay attention to the stock,” said Rohit Shrivastava, founder and market strategist at Indiacharts.
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The long-term story
Compounded sales growth for D-Mart for the last five years stands at 23 percent, while its compounded profit growth is at 25 percent. The Radhakishan Damani-owned company recently opened its 338th store in Katargram, Gujarat, raising the number of stores from 214 in FY20 to 336 in H1FY24.
"I think it's a great story, and we are so proud of knowing Bhai Saab (Damani) so personally well. I think the most best well governed company of India and the biggest wealth creator in such a short span of time," Kela said.
Avenue Supermarts reported a consolidated net profit of Rs 623.35 crore in Q2FY24, down 9.09 percent on-year. The company’s revenue was up 18.66 percent YoY at Rs 12,624.37 crore in the same period. Since listing in 2017, the shares have delivered returns of over 500 percent.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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