DMart is on the road to recovery, but in the slow lane

livemint.com:

HCL starts FY25 on a soft note; bumpy path ahead In the June quarter of FY25, a sharp year-on-year rise in employee costs and other expenses meant the Ebitda margin was flattish at 8.9%, erasing the gross margin gains. DMart said operating costs increased because of efforts to improve its service and build capabilities for the future. The company added six stores in the quarter, taking the total to 371.

Store additions fuelled DMart’s June quarter revenue growth of 18.4% to ₹13,712 crore, a figure that was disclosed earlier this month in an update for the quarter. Analysts were underwhelmed. Average sales per store grew 4.7% yoy in the quarter.

“(This is) broadly within the trend seen in past two to three quarters (5-7% yoy) but still not at par with what we believe the network is capable of delivering, given the strong runway that exists in the sector and DMart’s very compelling customer proposition," JM’s analysts said in a report on 13 July. DMart’s shares gained about 1% on Monday. The stock is up 22% this year, beating the Nifty 50 index’s 13% return, but valuations are a sore spot.

“While we believe that the worst is over when it comes to store additions and mix (GM&A), valuation at 90x one-year forward price-to-earnings multiple is at a steep premium to peers and prices in a lot of good news," said a Jefferies India report dated 14 July. Also read: Is TCS’ stellar revenue performance a one-quarter wonder? The stock’s recent appreciation may cap significant upside in the immediate future as the recovery is expected to be slow amid stiffer competition, especially from quick-commerce firms. Investors will keep a close eye on the pace of store additions in FY25, which may pick up in the second half of the year.