Shares of Avenue Supermarts- the parent company of the popular Indian supermarket chain DMart, fell by nearly 8.5% on Monday, hitting a low of ₹4,187.25 on the BSE on the back of weak Q2 earnings impacted by the growing popularity of online grocery platforms in the country.
Avenue Supermarts reported a 5.8% year-on-year (YoY) increase in net profit to ₹659.6 crore and a 14.4% increase in revenue, reaching ₹14,445 crore compared to ₹12,624 crore in the same quarter the previous year.
However, the numbers failed to meet expectations. While revenue growth remained in double digits, it marked the slowest expansion rate for DMart in four years, according to brokerage Bernstein.
The numbers caused leading brokerages to adjust their outlook on the stock.
Analysts across the board cited the company’s slow revenue growth, shrinking profit margins, and intensifying competition from online grocery platforms as key reasons for their downgrades.
The target price reductions were steep, with Morgan Stanley cutting its outlook to ₹3,702 from ₹5,769, reflecting mounting concerns about DMart’s ability to sustain growth in a highly competitive retail environment.
Brokerage firms slash target prices amid rising competition
While profit after tax and revenue increased, albeit modestly, the profit margin for the July-September quarter dropped to 4.6%, 0.3 percentage points lower than the same period last year.
Despite the company adding six new stores during the quarter, the lacklustre same-store sales growth (SSG) of 5.5% raised concerns about DMart’s ability to deliver sustainable earnings growth.
This SSG figure was significantly lower than Q1 FY25’s 9.1%, further contributing to market disappointment.
In response to the underwhelming earnings report, major brokerages downgraded their outlooks for DMart.
Morgan Stanley issued an “underweight” rating, cutting its target price drastically from ₹5,769 to ₹3,702.
The brokerage emphasized that competition from online grocery formats, especially in large metropolitan areas, has begun to erode DMart’s dominance, placing a cloud over the retailer’s growth potential.
JPMorgan similarly downgraded DMart from “overweight” to “neutral” and reduced its target price to ₹4,700, citing a slowdown in like-for-like (LFL) growth and rising operational costs.
The brokerage also noted that investments in the quick commerce segment and DMart Ready, the company’s online platform, are putting additional pressure on margins.
These factors, combined with slower store productivity and increased competition from e-commerce platforms, suggest that DMart may face further stock performance challenges in the months ahead.
Online grocery platforms squeeze margins
One of the critical factors impacting DMart’s performance is the rise of online grocery shopping.
Neville Noronha, CEO of Avenue Supermarts, acknowledged the growing influence of digital grocery platforms on large metro stores, stating that DMart Ready, the company’s online grocery initiative, grew by 21.8% in H1 FY25.
However, this growth was still lower than in previous periods, and competition from well-established online players has chipped away at DMart’s market share in urban centers.
Bernstein’s analysis pointed out that the like-for-like growth was the slowest in three years, further underlining the challenges DMart faces from online rivals.
This trend, combined with higher operational expenses, forced brokerages to re-evaluate DMart’s growth trajectory, suggesting that the retailer will need to develop new strategies to compete effectively in the changing landscape.
Mixed outlook despite long-term potential
While most brokerages cut their target prices and revised earnings estimates, some remain cautiously optimistic about DMart’s future.
CLSA, for instance, maintained its “outperform” rating, albeit with a revised target price of ₹5,360, down from ₹5,769.
CLSA’s analysts believe that DMart’s move toward private label products, coupled with its ongoing expansion, positions the company to tackle rising competition and operational challenges.
Nonetheless, CLSA also acknowledged that DMart’s gross margins and PAT were below estimates due to increased employee costs and slowing store productivity.
The firm cut its FY25-FY27 estimates by 13-15% to reflect these challenges but maintained that DMart’s long-term fundamentals remain intact, provided the retailer adapts to the evolving retail environment.
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