Brokerages remained divided on Avenue Supermarts Ltd., the operator of DMart, after its June-quarter earnings, as concerns over slowing growth and rising competition from quick commerce continued to shape their outlook on the retailer.
Most analysts agreed that the company's margins remained steady despite a challenging operating environment. However, they differed on whether DMart can return to stronger revenue growth, particularly in metro markets where quick commerce platforms continue to expand.
Avenue Supermarts (Q1 FY27, Consolidated YoY)
- Revenue up 15.1% to Rs. 18,343 crore versus Rs. 15,932 crore.
- Ebitda up 16.2% to Rs. 1,526 crore versus Rs. 1,313 crore.
- Ebitda margin at 8.3% versus 8.2%.
- Net profit up 12.8% to Rs. 936 crore versus Rs. 830 crore.
Bullish brokerages believe DMart's business model, store expansion pipeline and long-term growth opportunity remain intact despite near-term challenges. Bearish analysts, however, said slowing same-store sales growth, softer earnings momentum and the stock's valuation leave limited room for further gains.
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Brokerages On DMart
Morgan Stanley
- Maintained Overweight with a target price of Rs 5,083.
- Q1 margins were broadly in line with expectations, but a recovery in revenue growth remains the key trigger for the stock.
- Management commentary pointed to rising quick commerce competition in metro markets.
- Weak top-line growth could limit near-term upside.
- Continues to like the stock because of its large addressable market and strong business model.
- Awaiting further commentary from management at the annual investor meeting, typically held in July or August
Bernstein
- Reiterated Outperform with a target price of Rs 5,000.
- Q1 results demonstrate the resilience of the DMart business model despite the quick commerce onslaught.
- Believes averaging Q4 and Q1 performance provides a better picture of the company's underlying momentum.
- Store additions expected to remain above 80 annually, although partly funded through debt.
- The company's ability to sustain gross margins alongside positive same-store sales growth despite competition is encouraging.
- Cost curve expected to become more supportive over the next two to three quarters.
- DMart Ready remains a distraction rather than a differentiator, and investors should avoid over-focusing on a business the company itself has not fully solved.
Citi
- Maintained Sell and cut the target price to Rs 3,400 from Rs 3,650.
- Metro same-store sales growth has stalled as quick commerce pressure intensifies.
- Profit growth has trailed revenue growth in 10 of the last 13 quarters due to rising quick commerce competition, lower other income and higher interest costs.
- Cut FY27-FY29 revenue estimates by 4-6% and EPS estimates by 5-7%.
- Current risk-reward remains unfavourable and prefers to wait for a better entry point.
Goldman Sachs
- Maintained Sell with a target price of Rs 4,000.
- Revenue growth slowed despite a large number of store openings towards the end of the March quarter and higher FMCG inflation.
- Flat year-on-year growth in metro markets, likely due to increasing quick commerce competition.
- Ebitda margins remained largely flat as higher operating costs offset gross margin expansion.
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