DMart, Titan Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Avenue Supermarts - Gross margin and apparel pain seems behind

Two key incremental levers for DMart’s stock price performance from here are-

1. store expansion pace (growth repercussions) and

2. general merchandise and apparel performance (margin repercussions).

On the former, while resources available (CWIP plus Cash and Eq + FY25/26 CFO) are good enough to make ~50-60 store additions annually for FY25/26; to step up this pace-

1. real-estate availability needs to be solved for and perhaps,

2. some fundraising may be needed (QIP money fully utilised).

We don’t see DMart stretching itself for aggressive expansion (not their DNA). However, the latter (GM&A lever) is the easier one to pull.

Based on H2 performance, GM&A pain seems behind (outpaced overall portfolio growth). This could help DMart improve on margins (built-in).

We largely maintain our estimates (-2% each for FY25/26) and maintain our Reduce rating on DMart, with a DCF-based target price of Rs 3,600/share, implying 61 times FY26 price/earning.

Titan - Growth preferred over margins; misses expectations

Titan Company Ltd.'s jewellery (ex-bullion) sales grew 21.8% YoY to Rs 98.24 billion (our estimate: 105.62 billion). Domestic standalone jewellery sales (ex-bullion) grew 20%. Profitability took a back seat as elevated gold prices, softened demand and high competitive intensity arm-twisted Titan to increase promotional expenses to defend market share.

Management highlighted that the competitive landscape is likely to remain intense for the foreseeable future. Consolidated Ebitdam contracted 98 bps YoY to 9.5% (our estimate: 11.2%). Jewellery Ebitm (ex-bullion) contracted by 134 bps to 11.1% (our estimate: 11.6%), courtesy-

1. higher marketing spends to defend market share and

2. high base effect from one-time inventory gains and custom duty benefits in the base quarter.

Non-jewellery growth remained healthy (~21%) but disappointed on profitability.

We tone down our FY25/26 EPS estimates by 4/3% to account for lower jewellery margins and maintain our Sell rating with a DCF-based target price is Rs 2,750/share (implying 50 times FY26 price/earning).

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