DMart hits 52-week low on growth concerns, slips 35% from September high

Avenue Supermarts shares, the parent company of DMart, hit a 52-week low of Rs 3,552.95, falling 2 per cent on the BSE in Tuesday’s intra-day trade on growth concerns. The stock price of one of the largest food and grocery retailers in India has slipped 35 per cent from its 52-week high of Rs 5,484 touched on September 24, 2024. It has fallen below its previous low of Rs 3,567.35 touched on November 22. 

 

DMart shares are quoting lower for the sixth straight trading session, falling 7 per cent as the global brokerage firm, Goldman Sachs cut the target price on the stock to Rs 3,425 per share, as it believes DMart's competitive moat is facing increasing pressure.

 

 

Meanwhile, DMart’s September quarter (Q2F25) results missed street expectations due to lower store productivity. The like-for-like (LFL) growth fell to 5.5 per cent year-on-year (YoY), considerably lower from 9.1 per cent in Q1FY25, resulting in an H1FY25 LFL growth of 7.4 per cent.

 

The reported quarter marked the lowest revenue growth ever recorded for the company at just 14 per cent YoY.  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 YoY, although the retail expansion rate held steady at 14 per cent YoY.

 

An accelerated ramp-up of online grocery formats (quick commerce) in large metro cities led to a deceleration of key growth metrics for DMart. Overlap of consumers seeking convenience and shopping at DMart (value) appears to be higher than expected, which should continue to impact its growth trajectory. Further, a scale-up of DMart Ready continued to be significantly lower (+21 per cent YoY in 1HFY25), vs quick commerce despite lower absolute size, analysts at ICICI Securities said in the company's result update.

 

The brokerage firm cut the company's earnings estimates by 14 per cent / 17 per cent for FY25E/FY26E due to lower revenue growth assumptions (impact of quick commerce), and operating margins (due to operating deleverage), modelling revenue/ EBITDA/PAT CAGR of 17 per cent/16 per cent/15 per cent over FY24-26E.

 

Though there are initial signs of improvement, analysts at Axis Securities believe DMart is likely to take time in improving its overall store matrix in the near term as the demand environment continues to remain weak in the discretionary category and is expected to recover meaningfully only in H2FY25 and onwards. 

 

The larger and newer stores have higher gestation periods, thus impacting the overall profitability in the near term, the brokerage firm noted. The company also faces increasing competition from organised players (Reliance, Star Bazzar, Zudio), and online players (Zepto, Blinkit, Instamart) as they penetrate in smaller towns, it added.