8 per cent drop in D-mart stock price, despite good earnings. Know why?

Though the earnings numbers look pretty good, the stock has fallen 8 per cent on Monday, October 18.

Total revenue for the quarter ended September 30, 2021, stood at Rs 7,789 crore, as compared to Rs 5,306 crore in the same period last year, which is a YoY growth of 47 per cent. EBITDA in Q2FY22 stood at Rs 669 crore, as compared to Rs 330 crore in the corresponding quarter of last year, which is a YoY growth of 106 per cent. EBITDA margin stood at 8.6 per cent in Q2FY22 as compared to 6.2 per cent in Q2FY21. 

Net Profit stood at Rs 418 crore for Q2 FY22, as compared to Rs 199 crore in the corresponding quarter of last year, which is a YoY growth of 113 per cent. PAT margin stood at 5.3 per ent in Q2FY22 as compared to 3.7 per cent in Q2FY21. 

Though numbers look pretty good, the stock has fallen 8 per cent today. It rallied from the open price of Rs 5,600 to Rs 5,900 in the first hour of the trading session, then it fell heavily to Rs 4,900 in the afternoon session. 

The reason might be profit booking, as the stock has been rallying for quite a long time, 20 per cent up in last 5 days, 70 per cent up in last 6 months. The stock looks expensive, it is trading at a P/E multiple of 250, and people didn’t feel the price matches the fundamentals, whereas the industry P/E is 158. 

Some analysts opine that results didn’t meet the expectation, so there is a huge drop in the stock price. 

D-Mart follows Everyday low cost - Everyday low price (EDLC-EDLP) strategy which aims at procuring goods at a competitive price, using operational and distribution efficiency, thereby delivering value for money to customers by selling at competitive prices. 

What do you think about the fall?