While the quick commerce dent remains concentrated in dense metro catchments for now, Motilal Oswal believes overall discounting and customer acquisition intensity are unlikely to moderate in the near term and could weigh on DMart's growth and margins over the medium term. Acceleration in store additions and sustenance of mid-to-high single-digit like-for-like growth remain the most important growth levers for DMart. The stock, however, lacks near-term triggers to outperform, adds the brokerage.
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Motilal Oswal Report
Domestic brokerage firm Motilal Oswal has reiterated its Neutral rating on Avenue Supermarts Ltd., the operator of DMart, while cutting its target price to Rs 3,925 from Rs 4,000.
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The revised target implies about 12% upside from the brokerage's cited market price of Rs 3,520. The brokerage believes DMart lacks meaningful near-term triggers to outperform despite an improvement in operating growth.
In the quarter ending September, DMart's reported revenue growth accelerated to ~18% YoY versus ~15% in Q1 as like-for-like growth recovered to 9.5% vs. 5.5% in Q1 FY27.
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The company's store additions picked up to 15 in Q2 vs three in Q1, taking the total to 518 which is +20% YoY. However, the brokerage highlighted the consumer retail's profitability was weaker, with Ebitda/net profit missing estimates by 3%/ 7%, as Ebitda margin contracted ~30bp YoY due to weaker gross margin (- 10bp YoY because of lower general merchandise and apparel and higher cost of retailing per sqft, which rose ~3% YoY owing to entry-level wage inflation.
Additionally in H1 FY27, thought the revenue/Ebitda/PAT grew 17%/15%/10% YoY, led by ~20% YoY area additions, but Ebitda margin dipped ~10bp YoY to 7.8% due to higher CoR.
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