India's DMart slides after posting first profit drop in three years

BENGALURU, Oct 16 (Reuters) - Shares of Indias Avenue Supermarts (AVEU.NS) posted their steepest drop in five months on Monday after the DMart store chain operator posted its first drop in quarterly profit in three years.

The retailers standalone profit after tax fell nearly 10% in the July-September quarter, while its EBITDA margin shrank to 8.1% from 8.6% a year ago, contracting for the fifth straight quarter, the company said on Saturday.

And while total revenue rose 18.5%, sales growth slowed in the high-margin general merchandise and apparel (GMA) business. The segments contribution to total sales also fell, to 23.2% in the first half of fiscal 2024 from 24.75% a year ago.

Centrum Broking said GMA is the highest-margin category for DMart, estimating EBITDA margins of over 20% each quarter. It said the COVID-19 pandemic first delayed a recovery in the unit, with the current high inflation environment delaying progress.

Still, Motilal Oswal expects DMart to benefit from a pickup in discretionary spending in the festival season. That, along with robust store additions, is likely to drive an improvement in profit in the second half of fiscal 2024, the brokerage said.

Both Centrum and Motilal Oswal retained their “buy” ratings on DMarts stock.

The average rating of the 24 analysts covering the stock is “buy” and their median price target is 3,960 rupees, according to LSEG data.

DMart shares fell as much as 4.1% on Monday. They were last down 2.4% at 3,843.55 rupees as of 11:21 a.m. IST, extending their year-to-date decline to 5.5%.