DMart shares slide 4.5% as weaker margins temper sales growth

what happened

According to Newsmetry API, shares of Avenue Supermarts, the operator of the DMart retail chain, dropped more than 4% on Monday after its September-quarter figures highlighted a widening difference between sales growth and profitability. The stock ended 4.5% lower at Rs 3,358 on the National Stock Exchange (NSE), leading brokerages to revisit their margin assumptions for the retailer.

EBITDA was Rs 1,403.2 crore, below the analyst consensus of Rs 1,492 crore. The EBITDA margin narrowed to 7.3% from 7.6% a year earlier, with Avenue Supermarts citing higher operating costs, especially wage inflation among entry-level employees. Revenue reached Rs 19,206 crore, broadly matching expectations, while net profit of Rs 803.6 crore was slightly below the projected Rs 857.6 crore. Like-for-like sales increased 9.5%, but the stronger performance of comparable stores did not remove concerns about costs and operating earnings.

Citi kept its ‘Sell’ rating and Rs 3,250 price target, saying profits had continued to trail revenue growth in 11 of the last 14 quarters. The brokerage pointed to quick-commerce competition, weaker other income and higher interest expenses. Bernstein retained ‘Outperform’ with a Rs 5,000 target, arguing that 9.5% LFL growth showed continued resilience in DMart’s value-focused grocery model and questioned whether quick commerce would displace organised traditional retail. It nevertheless called margin consistency the main issue and highlighted the need to improve the profitability ramp-up of new stores while controlling operating expenses.

CLSA maintained its ‘High-Conviction Outperform’ view and a Rs 5,723 target, the highest among the cited brokerages. Jefferies kept ‘Hold’ but reduced its target to Rs 4,000 from Rs 4,500. It acknowledged solid customer traffic and one of the stronger recent LFL readings, but said profitability had missed expectations, while unit-level quarterly EBITDA fell to a multi-quarter low. Jefferies cut its earnings-per-share estimates by 2-3%. Avenue Supermarts added 18 stores during the first half of the current financial year, with 15 opened in the September quarter, bringing the network to 518 locations.

why it matters

The market focus is shifting to whether new outlets can reach profitable scale as wage costs rise and quick-commerce competition intensifies. Store expansion supports longer-term growth, but recent results show that larger sales and a wider network have not yet translated into stronger earnings.

instruments