Synopsis: Avenue Supermarts Ltd (DMart) witnessed a significant decline in its stock price following muted Q2 results, with revenue growth slowing to 14% YoY—the lowest in any quarter to date. Increasing competition from online grocery formats and quick commerce has put pressure on DMart’s sales in metro cities, resulting in lower-than-expected earnings projections for FY25 and FY26.
Overview of Avenue Supermarts Q2 Performance:
Avenue Supermarts Ltd (DMart) reported a subdued Q2 performance, with a year-on-year (YoY) revenue growth of 14%, marking the slowest quarterly growth in the company’s history.
Like-for-like (LFL) growth further declined to 5.5% compared to previous high-single digits.
This underperformance has been largely attributed to increasing competition from online grocery platforms and quick commerce services, which have gained popularity, especially in metropolitan areas.
Radhakishan Damani, along with other promoters holding a 74.65% stake in DMart, faced a notional loss of Rs. 20,800 crore as the stock dropped over 9% during Monday's trade, hitting a low of Rs. 4,143.60.
This decline reduced the promoters' stake value from Rs. 2,22,112 crore to Rs. 2,01,284 crore.
Analyst Reactions and Market Sentiment:
ICICI Securities pointed out that DMart’s Q2 revenue growth of 14% YoY was the lowest ever recorded in a quarter.
Footfalls (or bill cuts) dropped by 1% sequentially, compared to a 4% increase in the previous quarter.
The flat year-on-year revenue per store, coupled with a stable retail expansion rate (14% YoY), has raised concerns among analysts.
ICICI Securities downgraded the stock to 'Reduce' from 'Add,' with a revised target price of Rs. 4,100.
Concerns regarding DMart’s growth trajectory were echoed by analysts at other brokerage firms.
Prabhudas Lilladher has adopted a 'Hold' stance, revising its target price to Rs. 4,748 from the earlier Rs. 5,168, while noting the potential impact of the upcoming festive season on sales.
Centrum Broking highlighted competitive pressures and a decline in discretionary spending as major factors behind the disappointing Q2 performance, adjusting its target price to Rs. 5,655 and upgrading the stock to 'Buy' after the recent price correction.
Challenges Ahead for DMart:
DMart’s sales and LFL growth have been adversely affected by the rise of quick commerce services and a moderation in inflation.
Analysts from Motilal Oswal Financial Services Ltd (MOFSL) pointed out that DMart’s revenue growth remains highly dependent on its ability to increase store area.
Despite the slower-than-expected Q2 performance, MOFSL believes that store additions could pick up pace, particularly in H2FY25, with a projected 40 new stores in FY25, 45 in FY26, and 50 in FY27.
However, analysts have adjusted revenue estimates for FY25 and FY26 by 2% and 4% respectively, citing weaker store productivity that partially offsets new store additions.
In conclusion, DMart faces significant challenges in maintaining its competitive edge in the face of rising online grocery formats and quick commerce players.
The company's Q2 results have sparked concern, leading to stock downgrades and revised earnings projections.
However, some analysts remain optimistic about the long-term potential, particularly with DMart's plans for store expansion and increasing capital expenditure.
Investors will be watching closely for signs of recovery, particularly during the festive season and with the ramp-up of DMart Ready in the coming quarters.
Disclaimer: This article provides stock market news for informational purposes only. It should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
