DMart Stock Drops 3% as Brokers Hold Mixed Q2 Outlook

DMart Faces Mixed Broker Reactions Following Q2 Results Amid Competitive Pressures

Avenue Supermarts’ latest quarterly results reveal a complex landscape for DMart, as brokerages express diverging views on the stock’s future amidst rising competition and margin pressures.

Quarterly Performance Overview

Avenue Supermarts reported an 8.5% increase in consolidated net profit, amounting to ₹742.98 crore for the September quarter, compared to ₹684.85 crore in the same period last year. Revenue from operations surged by 17.8% to ₹19,644 crore, up from ₹16,676.30 crore a year earlier. However, total expenses also rose significantly, climbing 18.3% to ₹18,632.70 crore, which contributed to concerns regarding profitability.

Brokerage Insights: A Mixed Bag

Brokerages have reacted differently to DMart’s Q2 performance. Motilal Oswal Financial Services noted a recovery in like-for-like (LFL) growth to 9.5%, despite a slight decline in profit margins to 4.2%. The firm highlighted the addition of 15 new stores, bringing the total to 518, which reflects a robust expansion strategy. However, the increase in interest costs and a decline in other income raised concerns about future profitability.

Elara Capital acknowledged the healthy sales growth but expressed concerns about the weaker throughput from new stores. They revised their earnings per share estimates downwards for FY28 and FY29 by 4-5% and lowered their target price for DMart from ₹4,700 to ₹4,200, maintaining an “Accumulate” rating.

Conversely, PL Capital downgraded its rating from “Hold” to “Reduce,” citing increased competition from quick-commerce players. The brokerage pointed out that DMart’s gross margins are under pressure, as the company struggles to pass on rising commodity costs to consumers amid fierce competition.

Market Reaction and Stock Performance

Following the mixed reviews from brokerages, DMart’s stock experienced a decline of 3%, opening at ₹1,630 before reaching an intraday high of ₹1,679. By midday trading, the stock was at ₹1,638.20, reflecting a modest recovery but still underperforming against the broader market, with the Nifty 50 index down 1.11%.

Future Outlook and Strategic Considerations

As DMart navigates a challenging retail landscape, the focus will be on its ability to adapt to the rapid changes driven by quick-commerce competitors. The company’s current strategy, including the limited rollout of D’Mart Ready in just 11 cities, may need reevaluation to capture the evolving consumer preferences. The ability to maintain margins while expanding its footprint will be crucial for sustaining investor confidence.

Key Highlights

• DMart’s Q2FY27 net profit rose 8.5% year-on-year to ₹742.98 crore.
• Revenue from operations increased by 17.8% to ₹19,644 crore.
• Brokerages have mixed views on DMart, with target prices ranging from ₹4,200 to ₹4,700.
• PL Capital downgraded its rating from “Hold” to “Reduce” due to rising competition.
• DMart added 15 new stores, bringing its total to 518.

Investor Note: Investors should closely monitor DMart’s strategic responses to competitive pressures and its ability to manage margins while continuing to expand its store network. The mixed brokerage outlook suggests a cautious approach may be warranted in the near term.