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Morgan Stanley awaits a better price to re-enter Avenue Supermarts.

Shares of Radhakishan Damani-owned Avenue Supermarts that operates DMart chain of retail stores, nosedived as much as 17% to Rs 4,897 in Monday’s afternoon session after briefly hitting a record highs of Rs 5,900 in early deals post reporting a significant rise in its consolidated net profit for the second quarter of the current fiscal. The company on Saturday reported consolidated profit after tax of Rs 418 crore for the quarter ended September 2021, an increase of 110% from Rs 199 crore in the same quarter the previous year. Sequentially, the profit is significantly higher from Rs 95.36 crore (low base due to lockdown impact).

Consolidated revenue came in higher at Rs 7,789 crore for the quarter, an increase of 47% compared to Rs 5,306 crore in the June 2020 quarter. Sequentially, the revenue is higher by 50% from Rs 5,183 crore.

Overall gross margin was higher at 8.6% compared to 4.3% in the previous quarter and 6.2% in the previous year. Gross margins have improved year-on-year due to relatively long hours of operations, higher general merchandise sales, rising staples/FMCG product prices and higher sales of non-essential products. Net margin for the quarter improved to 5.4% which was at 1.8% in the previous quarter and 3.7% in the same period last year.

DMart has 187 stores that are 2 years or older, and these stores grew by 23.7% in the month of September 2021 as compared to September 2020.

Despite such stellar performance, most brokerages aren’t excited about the stock. Here is what they have to say

Morgan Stanley | Rating: Underweight | Price target: Rs 4,338

Q2 earnings missed Morgan Stanley’s estimates but were ahead of consensus. Given strong trailing stock performance tactically have assigned ‘Underweight’ rating the stocks. The global brokerage firm awaits a better price to re-enter the stock.

Credit Suisse | Rating: Underperform | Price target: Rs 3,500

Q2FY22 was largely in line with full normalcy being restored after the second wave. D-Mart will continue to execute well on its proven ‘everyday low price’ strategy. Credit Suisse has downgraded its rating to ‘Underperform’ as the stock is trading at extremely stretched valuations.

Kotak Institutional Equities | Rating: Sell | Price target: Rs 3,080

DMart posted 2QFY22 revenue growth of 46.6%/52% YoY/QoQ as lockdown restrictions eased. EBITDA of Rs6.7 bn was 4% below estimates due to a lower GM (gross margin) of 14.3% as a result of weaker-than-expected general merchandise sales. Store additions will continue to gather pace as construction activity recovers. The brokerage firm believes the stock is pricing in aggressive revenue growth with no margin dilution.