DMart Gets Target Price Cut As Goldman Sees Quick Commerce Competition Rise

Goldman Sachs slashed DMart operator Avenue Supermarts Ltd.'s target price as it sees competitive pressure in retail markets, which are increasingly challenged by the rise of quick-commerce players.

The brokerage has maintained its 'sell' rating on the stock and has a target price of Rs 3,425 per share, which implies a downside of 10.3% from the current stock price of Rs 3,816.30.

DMart, known for its strategy of offering the lowest prices for branded fast-moving consumer goods, has been compelled to ramp up its discounting activities to maintain its pricing edge. According to Goldman Sachs analysis, the company’s discounting on its FMCG products has increased to as much as 25% off the maximum retail price in December 2024, in response to heightened competition.

Goldman Sachs also points to the limited addressable market for DMart, estimating that only about 17% of India’s overall $500-billion grocery market is within the company’s reach.

While DMart’s growth potential is often compared to the size of India’s massive grocery market, the report highlights that large portions of the market, including rural areas, meat, and intoxicants, are not addressable by the retail chain. This significantly reduces the overall market opportunity available to the company, with Goldman Sachs pegging DMart’s total addressable market at around $86 billion.

DMart’s business model, which relies heavily on owning real estate for its stores, limits its expansion to a gradual pace. This contrasts with the more aggressive expansion strategies of quick commerce players, which are rapidly scaling up their presence in India’s top 10 cities.

According to Goldman Sachs, DMart’s growth prospects are strongest in smaller cities beyond the top 10, where competition is less intense. However, the company’s slower expansion approach may hinder its ability to capitalise on emerging opportunities, the brokerage said.

In light of these factors, Goldman Sachs has lowered its earnings estimates for DMart for financial years 2025, 2026, and 2027 by 4.2%, 6.2%, and 6.1%, respectively, to reflect slower revenue growth.