DMart Falls 4% After Q1 Profit Beat Fails to Ease Metro Sales Worries

Avenue Supermarts Ltd shares dropped more than 4% on Monday after the DMart operator posted a June-quarter net profit that beat expectations on the bottom line. The stock hit an intraday low of ₹3,908 on the NSE before recovering to ₹3,988.20, down from Friday's close of ₹4,081.10. Volume ran roughly double the 30-day average.

The company reported standalone net profit of ₹936 crore for the quarter ended June 30, up 12.8% from a year earlier. Revenue climbed 15.2%, a pace that trails the 18-20% compounded growth some brokerages had expected after DMart added 85 stores over the preceding 12 months.

The split in performance drew a wide range of analyst reactions. Citi, the most bearish of the five houses that published notes Monday, kept its sell rating and cut its target to ₹3,400 from ₹3,650. "Metro same-store sales growth has stalled as quick commerce pressure intensifies," the brokerage wrote. Citi also noted that profit growth has trailed revenue growth in 10 of the last 13 quarters, driven by lower other income and higher interest costs. It cut its FY27-FY29 revenue estimates by 4-6% and EPS estimates by 5-7%.

Goldman Sachs maintained its sell rating with a ₹4,000 target. Revenue growth slowed despite a large number of store openings late in the March quarter and higher FMCG inflation, the brokerage said. EBITDA margins stayed largely flat as higher operating costs offset gross margin expansion.

PL Capital kept a hold rating with a negative bias and a ₹4,103 target. The brokerage noted that DMart Ready has exited 14 cities in the last 15 months and is now confined to 11 cities with a focus on larger towns. PL Capital estimated that the company's debt load rose to about ₹25 billion from ₹11 billion a year earlier and expects elevated store additions of around 75 in each of FY27 and FY28.

On the bull side, Elara Capital initiated coverage with an accumulate rating and a ₹4,700 target. The brokerage projects revenue CAGR of 18.1% and PAT CAGR of about 18% through FY29, powered by store additions of roughly 16% a year and like-for-like growth of about 7%. It expects EBITDA margins to hold around 7.6-7.7%.

Morgan Stanley maintained its overweight rating with a ₹5,083 target. Q1 margins were broadly in line with expectations, the brokerage said. It added that a recovery in revenue growth remains the trigger for the stock, and that management commentary at the annual investor meeting – typically held in July or August – would be the next catalyst.

Bernstein reiterated its outperform rating with a ₹5,000 target. "Averaging Q4 and Q1 performance provides a better picture of underlying momentum," the brokerage wrote. It expects store additions to stay above 80 annually, partly financed through debt. The ability to sustain gross margins alongside positive same-store sales growth despite competition was encouraging, Bernstein said.

The company also announced plans to raise up to ₹1,000 crore through non-convertible debentures. No timetable for the issuance was provided.