Analysts remain sceptical of Avenue Supermarts' DMart’s recent growth

By

Isabelle Crossley

Published
Jan 11, 2022

Avenue Supermarts' DMart reported over 20% growth in both sales and profit in the financial quarter which ended in December, 2021 but some analysts have termed the business’ performance as underwhelming. 

The recent quarter saw businesses enjoy near-normal operating conditions and sizeable commodity inflation which has led some analysts to call DMart’s recent growth too little for its stock market valuation, the Economic Times reported. DMart’s gross margin also failed to grow and its growth in earnings before interest, tax, depreciation, and amortisation was mainly due to operating leverage.
 
“Consensus continues to believe that DMart is a linear and secular growth story but we disagree,” ICICI Securities' Manoj Menon and his team said in a note, ET Bureau reported. 

DMart retails a wide range of value fast-moving consumer goods including apparel and accessories. However, the business’ apparel segment, along with general merchandise, has performed considerably less well than its essentials and groceries segments. The weak performance of the business’ apparel segment has negatively affected its overall revenue and profit margins, the analysts said. Increasing retail restrictions due to Covid-19 are expected to exacerbate this trend of ‘essential’ groceries over apparel. 
 
“In India, nuances matter more,” said Menon. “We disagree with consensus' over-enthusiasm. Watch out for DMart potentially getting disrupted like how India skipped wireline penetration and jumped directly to wireless.”