D-Mart share price tanks 4% after Q4 numbers; Buy or sell? Here is what you should do

D-Mart share price slipped nearly 4 per cent after market mogul Radhakishan Damani-owned Avenue Supermarts reported 73 per cent annual rise in net profit at Rs 167 crore for the March quarter, below Street expectations, against Rs 97 crore net profit reported in the same quarter a year ago. The grocery seller added 24 stores in FY18, of which 14 were added in the fourth quarter. 

D-Mart share price, reacting to the quarterly earnings numbers,  slipped as much as 3.7 per cent to Rs 1433.45 on the BSE. 

"D-Mart 4QFY18 net profit of Rs 1.7 billion was below estimates due to slower-than-expected revenue growth of 22.5 per cent year on year and lower margins," explained brokerage Kotak Securiuties in its results review report.

The brokerage maintained its 'sell' rating on the stock as the stock is trading at expensive valuations.  

"The increase in store count in FY2020 drives an increase of 1.4 per cent in our EBITDA estimate, though lower other income leads to an EPS cut. The EBITDA increase drives an increase in our DCF-based target price from Rs 810 to Rs 835. Valuations at 73 times FY2020E P/E remain expensive; retain SELL," said Kotak in a research note. 

Brokerage Motilal Oswal Securities also has a Sell rating with a target price of Rs 920. The brokerage increased its new store addition estimate to 27 stores in FY2019 and 30 stores in FY2020 from 25 stores earlier.

At Friday's closing price of Rs 1486, the stock was trading at a P/E of 86x FY19E and 65x FY20E. 

The company's total revenue was up 26.3 per cent y-o-y to Rs 3,508 crore. The company’s interest expenses declined 65.6 per cent y-o-y to Rs 10.93 crore, while other income increased to Rs 21.2 crore in the quarter compared to Rs 8.04 crore in the year-ago period, the company said.

The company’s earnings before interest, taxes, depreciation and amortisation was up 36.5 per cent y-o-y to Rs 318 crore. The operating margin improved to 9.1 per cent in Q2FY18 compared to 8.4 per cent in Q2FY17.

Neville Noronha, CEO and MD, Avenue Supermarts, said: “Results have been in line with expectations. GST transition has been smooth and has settled across Avenue Supermarts and our partner network’s commercial and IT systems. We continue to follow everyday low cost — everyday low price strategy which aims at procuring goods at competitive price delivering value for money.”

Avenue Supermarts, which spiked a whopping 100 per cent on its listing day in March last year, made Radhakishan Damani — the founder of the company and a low-profile value investor a part of India’s richest 20 club.