DMart shares plunge 9% as it misses Q2 street estimates; brokerages mixed

DMart share price: Shares of Avenue Supermarts (DMart) dropped up to 9.37 per cent to hit an intraday low of Rs 4,143.60 per share on Monday, October 14, 2024.

The fall in DMart share price came after the company’s September quarter results missed street expectations. 

In the September quarter (Q2FY25), DMart’s net profit increased 5.8 per cent year-on-year (Y-o-Y) to Rs 659.6 crore, compared to Rs 623.6 crore in the same quarter previous fiscal (Q2FY24). The revenue rose 14.4 per cent annually to Rs 14,444.5 crore, up from Rs 12,624.37 crore in Q2FY24.

DMart’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) jumped 29.3 per cent to Rs 1,093.8 crore, compared to Rs 846 crore in the previous year. Consequently, Ebitda margin expanded to 7.6 per cent, improving from 6.7 per cent year-on-year.

Meanwhile, here’s what brokerages said about DMart’s Q2 results:

Nuvama Institutional Equities

Analysts at Nuvama said DMart posted a weak Q2FY25 due to lower store productivity. The like-for-like (LFL) growth fell to 5.5 per cent year-on-year, considerably  down from 9.1 per cent in Q1FY25, resulting in an H1FY25 LFL growth of 7.4 per cent. 

Increased operating expenses aimed at improving service levels have compressed the Ebitda margin. Additionally, growth in DMart Ready (online ordering platform) slowed to 22 per cent Y-o-Y in H1FY25, down from 32 per cent in FY24. The management also acknowledged that online grocery competitors are affecting its high-performing metro stores. 

As a result, Nuvama is cutting its FY25 estimates for revenue, Ebitda, and PAT by 3 per cent, 4 per cent, and 7 per cent, respectively, leading to a revised target price of Rs 5,040 (previously Rs 5,183). They, however, maintain a 'Hold' rating.

Motilal Oswal
 

Motilal Oswal analysts stressed that DMart's revenue growth is heavily reliant on expanding its store area. They expect store additions to accelerate in the second half of FY25, projecting 40, 45, and 50 new stores for FY25, FY26, and FY27. However, recent LFL growth has been affected by moderating inflation and the rapid growth of quick commerce services. 

Motilal Oswal has lowered its revenue estimates for FY25 and FY26 by 2 per cent and 4 per cent, respectively, as weaker store productivity offsets anticipated higher store additions. Ebitda estimates for FY25 and FY26 have been reduced by 6 per cent and 10 per cent, and EPS estimates by 8 per cent and 14 per cent, respectively. 

Analysts project a compound annual growth rate (CAGR) of 17 per cent in revenue and 20 per cent in PAT from FY24 to FY27, supported by growth in store footprint and productivity. 

Using a 51x enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) multiple for December 2026 estimates, Motilal Oswal analysts have set a target price of Rs 5,300 and reaffirmed a 'Buy' rating, noting that the stock is currently trading about 10 per cent below its long-term average multiples.

ICICI Securities 

Analysts at ICICI Securities have noted that the accelerated rise of online grocery formats, particularly quick commerce in large metro cities, has led to a slowdown in key growth metrics for DMart. ‘

This quarter marked the lowest revenue growth ever recorded for the company at just 14 per cent year-on-year. The like-for-like (LFL) growth was only 5.5 per cent, a notable drop from the previous high-single digits. 

Additionally, footfalls (bill cuts) declined by 1 per cent quarter-on-quarter, compared to a 4 per cent increase in the same period last year. Revenue throughput per store remained flat year-on-year, although the retail expansion rate held steady at 14 per cent year-on-year.

The Ebitda margin decreased by approximately 30 basis points due to operational deleverage, despite improvements in gross margin driven by a favourable product mix. 

Analysts further observed that the overlap between consumers seeking convenience through quick commerce and those shopping at DMart for value appears to be greater than anticipated, which may continue to affect DMart's growth trajectory. Furthermore, the growth of DMart Ready remained considerably lower at 21 per cent year-on-year in H1FY25 compared to quick commerce, despite its smaller scale.

Considering these challenges posed by quick commerce, ICICI Securities has downgraded the stock rating to ‘Reduce’ from ‘Add’, with a revised target price of Rs 4,100.

Global brokerages disappointed
 

According to reports, Morgan Stanley has downgraded Avenue Supermarts to 'Underweight', lowering its target price to Rs 3,702 per share. Similarly, the New York-based brokerage JPMorgan has downgraded DMart to 'Neutral' from its previous rating of 'Overweight' and reduced its price target from Rs 5,400 to Rs 4,700 per share. Meanwhile, Goldman Sachs has also issued a 'Sell' recommendation on DMart, setting a target price of Rs 4,000 per share, the reports said. The brokerage highlighted that the rapid expansion of quick commerce is likely to continue impacting Avenue Supermarts in the future.