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DMart share price up 4 times since listing; is it worth buying now? Analysts tell why, and why not

Kshitij Bhargava

The shares of Avenue Supermarts – the operator of DMart supermarket chain – has quadrupled in less than three years since listing on Indian stock exchanges. DMart has now crossed the Rs 1.50 lakh crore mark in terms of market capitalisation, and has overtaken big-wigs such as Nestle, Bajaj Finserv and Wipro. Avenue Supermarts shares closed at Rs 2,405 on Tuesday, and were up 31 per cent from December-end. Avenue Supermarts share price jumped 8.58 per cent on Monday on the company's plans to raise equity funds via a qualified institutional placement (QIP) issue of shares. On Tuesday, DMart operator Avenue Supermarts said it has raised Rs 4,098 crore from share sale. Among the investors are Lone Cypress and Singapore Government. Avenue Supermarts share price closed down 3.17 per cent on Tuesday.

Is DMart share worth a buy now, or should you sell? What experts say

Experts however remain divided when it comes to Avenue Supermarts share price. How the share price has jumped so high since it got listed is what is troubling the experts on Dalal Street. While Vishal Wagh of Bonanza Portfolios remains bullish on the share, Sanjiv Bhasin of IIFL securities, and investment advisor Sandip Sabharwal remain sceptical of the high share price. Analysts at Geojit Financial Services say that accelerated store addition by Avenue Supermarts in comparison to last year shows that business is strong. "Valuation is high, considering their strong growth and store addition, the high valuation is expected to remain so," said Vincent Andrews, analyst at Geojit Financial Services which has a "hold" call on the stock.

Avenue Supermarts was listed on bourses in March 2017. The IPO price band was fixed at Rs 295-299, however, it was subscribed 104.48 times making it the biggest IPO since PNB Housing Finance in 2016. Earlier this week, investment Advisor Sandip Sabharwal expressed his anguish on DMart share price. Taking to Twitter he said, "It is madness what is happening in DMart. It's not a business that can grow at a rate justifying a 100 P/E as its a linear growth business. No valuation model can justify such prices."

Sanjiv Bhasin of IIFL Securities too is unsure about the stock. "Extremely overbought and overpriced but managed to stay high because of the existing circumstances. It is very difficult to comprehend a buy at 100 times the price-earnings. But, it has defied gravity," he said. Bhasin said that the valuation will not justify a call at this time.

Technical outlook

"Trend is up on Dmart and we are not expecting any resistance. As far as levels are concerned 2000 should be basically strong support and the stock has not to retrace once it has crossed 2000 level on a closing basis. Levels of 2270-2176 are major support. Trend reversal will only happen below 2000 on closing basis," said Vishal Wagh.

Avenue Supermarts share price remained below the Rs 2,000 mark before surging above that at the end of January 2020 and has not looked back since. "Presently, the stock trades grossly overbought and over-extended on both short-term and long-term charts. It would be an unfavorable risk-reward setup to enter the stock afresh at current levels. On the contrary, the present levels should be used to protect existing profits and re-entry can be made only after the stock moves past its previous high levels," said Milan Vaishnav, CMT, MTSA.

Avenue Supermarts strong financials

There is a consensus among experts that the underlying business of Avenue Supermarts is going strong. With total revenue of Rs 6,752 crore in the third quarter, efforts to open more stores, and successfully raising Rs 4,098 crore from the QIP the company is sending positive signals to investors.

Avenue Supermarts' results for the third quarter of the fiscal have been strong with store addition continuing at a strong pace, adding 20-25 stores every year. In the December Quarter Avenue Supermarts reported year-on-year growth of 24.4 per cent, the only thing that experts think comes close to justifying the share price of Rs 2,410.

Company’s promoter now the 6th richest man in India

Now, with the jump in share price and market capitalisation, veteran investor Radhakrishan Damani, who owns and operates the company, has seen his wealth multiply manifold, according to a report in The Economic Times. Damani is now the sixth richest man in India with a net worth of $11.9 billion. With this, he has taken over the likes of Gautam Adani and Sunil Mittal.