The Radhakishan Damani-owned DMart is in focus this morning. Nuvama Institutional Equities has cut the 12-month price target. But international brokerage firm Jefferies has upgraded the ratings. What’s the right investment strategy now?
Nuvama on Avenue Supermarts: Margin pressure lingers on
The brokerage slashed the target price for Dmart by 4.4% to Rs 4,086 from Rs 4,273 and maintained a ‘Hold’ rating on the stock. DMart, which is operated by Avenue Supermarts, logged impressive 7.1% like-for-like (same store sales) growth despite major deflation in staples and non-food, boosted by a 3% larger average bill. But this came at a cost. The cost was a 27 basis points drop in gross margin and a 66 basis points slip in EBITDA margin.
Nuvama said that the margins struggled due to a shift in sales mix towards lower-margin food (+79 basis points impact), capacity investments on better service, and rising entry-level wages.
“We estimate pressure in margins shall continue given the competitive trends; hence, we are cutting FY26/27 PAT estimates (profit after tax) by 6%/8%,” said Nuvama.
Nuvama on Avenue Supermarts: Top-line growth momentum maintained
Not everything is as bad as it sounds, as the company’s topline is still intact. DMart reported standalone revenue growth of 16.2% year-on-year and 10.2% on quarter. However, bills cut per store has decreased by 1%, but the average bill size grew by 3% YoY for DMart.
Plus, DMart added nine stores this quarter, taking the total store count to 424. DMart had added six stores in Q1FY25. It implies a TTM (trailing twelve months) addition of 53 stores.
Further, the company’s recent expansion in Uttar Pradesh (UP) marks the entry into a new state after six years. The hope is that its cluster-based expansion would accelerate with more stores being opened in UP.
Jefferies on Avenue Supermarts: Raises target price despite margin pressure
While Jefferies also repeated that margins were affected due to increased competition in FMCG, however, it raised the target price by 3% to Rs 4,200 from Rs 4,100. The global broker kept the ‘Hold’ rating intact.
“While EBITDA margin picked up sequentially, YoY contraction continued and hence EBITDA growth was a modest 8%,” said Jefferies.
However, Avenue Supermarts’ standalone gross margin declined YoY to 14.6% due to a lower share of high-margin general merchandise & apparel and non-foods (FMCG), while the share of foods increased.