Shares of Avenue Supermarts, the parent company of DMart, saw a sharp drop of 5.7% on January 13, 2025, following the release of disappointing Q3 results. The DMart share price fell to Rs 3,474, reflecting investor concerns over the retailer’s declining margins and the intense competition in the retail sector. Despite posting a 17.5% year-on-year (YoY) growth in revenue and a 6.5% increase in profit, both EBITDA and PAT margins declined, indicating underlying challenges in the business.
DMart Q3 Financial Overview
- Revenue Growth: DMart reported a revenue of Rs 15,565 crore for Q3 FY25, a growth of 17.5% YoY.
- Profit Growth: Profit for the quarter rose by 6.5% YoY, reaching Rs 785 crore.
- Margins: Despite the revenue and profit growth, EBITDA margin fell to 7.9% from 8.5% in Q3 FY24, and PAT margin dropped to 5% from 5.5%.
- Same-Store Sales Growth: The company reported an 8.3% increase in same-store revenue growth for 2-year-old stores and older locations.
Competitive Pressures and Margin Challenges
Analysts have highlighted that DMart’s margins are likely to remain under pressure due to the intensifying competition in the retail market, particularly in the FMCG (Fast-Moving Consumer Goods) sector. The company’s strategy of prioritizing market share over margins, which has led to aggressive discounting, is expected to continue affecting its profitability in the short term. DMart faces pressure from high turnover stores in metro cities, though the intensity of discounting seems to have reduced slightly compared to the previous quarter.
Home Delivery Demand Grows
In Q3, DMart also noted a shift in consumer behavior, with a significant increase in demand for home delivery services, surpassing the contribution of its pick-up point sales. This shift aligns with the company’s strategy to focus on home delivery as a key growth channel, with several towns now offering only home delivery options for customers.
Leadership Changes at DMart
In addition to the financial results, Avenue Supermarts announced a leadership change. CEO Neville Noronha will not renew his contract as Managing Director and CEO when his current term ends in January 2026. As part of this transition, Anshul Asawa has been appointed as the CEO Designate, effective March 2025.
Analysts’ Recommendations on DMart Share Price
Following the disappointing Q3 results, analysts have revised their recommendations on DMart shares:
- Nuvama: Nuvama has maintained a ‘Hold’ rating on Avenue Supermarts, revising the target price down to Rs 4,212 from Rs 5,040. The lower target price reflects expected margin pressure due to intense competition and a strategy focused more on market share than profitability.
- Motilal Oswal: Motilal Oswal continues to rate DMart shares as a ‘Buy’, with a new target price of Rs 4,450 (down from Rs 4,750). The brokerage has cut its earnings estimates due to rising retail costs and increasing competition but remains optimistic about the company’s long-term prospects in the non-food FMCG and general merchandise sectors.
- ICICI Securities: ICICI Securities has downgraded DMart shares to a ‘Reduce’ rating with a target price of Rs 3,300. The firm has revised its earnings estimates downward, citing concerns over the company’s declining margins and uncertain medium-term growth trajectory.
Should You Buy, Sell, or Hold DMart Shares?
- Buy: If you’re an investor with a long-term perspective, DMart shares might still be worth considering. The company’s strong revenue growth and its ability to adapt to changing consumer preferences, such as the rise in home delivery, are positive indicators. Analysts at Motilal Oswal suggest that the long-term outlook remains favorable despite near-term challenges.
- Sell: For short-term traders or those concerned about the ongoing margin pressure and competition, it might be prudent to reduce exposure to DMart. The downgrade by ICICI Securities suggests that the stock’s growth trajectory may face headwinds, making it less appealing for risk-averse investors.
- Hold: If you already hold DMart shares, it may be wise to hold the stock while monitoring further developments. The company’s solid revenue growth and leadership transition could still offer opportunities for a rebound, but be prepared for potential volatility as competition and margin pressures persist.
Conclusion
While DMart continues to deliver strong revenue growth, the decline in margins and the intense competition in the retail sector have put pressure on its share price. Analysts are divided on the stock, with some recommending a Hold while others suggest Sell due to the uncertain medium-term growth outlook. Investors should carefully assess their risk tolerance and investment horizon before making any decisions regarding DMart shares.
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