Shares of Avenue Supermarts Ltd (DMart) could be in for some pain, as stock analysts cut earnings and target multiples following the December quarter results. Analysts said DMart’s margins would continue to be under pressure amid the high competition and the management’s focus on the market share, followed by margins.
DMart's Q3 revenue, Ebitda and profit grew 17 per cent, 10 per cent and 6 per cent, respectively. This was below Antique Stock Broking's expectations. The brokerage said the increasing competition from online groceries in metro cities led to higher discounting, impacting gross margin. While cutting Ebitda its estimates by 5-12 per cent over FY25-27, it said the CEO's exit could impact the short-term performance of retailer.
"Hence, we cut our target multiple from 45 times EV/Ebitda to 40 times. We maintain HOLD recommendation with a revised target price of Rs 3,978 (previously Rs 5,026), based on 40 times EV/Ebitda on FY27 estimate, implying 68 times FY27E EPS," it said.
Quick commerce has gained aggressive market share, which is affecting DMart’s operation, said Centrum Broking. "Further lower GMA contribution and higher inflation could retain tight range on margin, going forward. We believe, changes in the management in senior leadership -- Neville Noronha will not continue as MD & CEO and Anshul Asawa will be joining from HUL effective March 15th -- could have mixed impact on operational performance given subdued consumption," it said.
This broking firm has downgraded DMart earnings by 15 per cent for FY25-27E and downgraded the stock to 'ADD' with revised target price of Rs 4,160. Nuvama trimmed its revenue/profit after tax estimates for FY25 and FY26 by 0.5 per cent/11 per cent and 2.1 per cent/17.4 per cent, respectively, on account of lower margins and suggested a revised target price of Rs 4,212 from Rs 5,040 earlier.
MOFSL said the competitive intensity has increased significantly following the recent fundraising by the top three quick commerce players. While it believes DMart's value-focused model would co-exist with quick commerce's convenience model over the longer term, rising competition on pricing could weigh on its growth and margins in the near term.
"We reduce our FY25-27E Ebitda by 4 per cent each due to higher CoR and rising competitive intensity from QC, while we cut our FY25-27E EPS by 4-7 per cent. We now model a 15-17 per cent CAGR in DMart's consolidated revenue/Ebitda/PAT over FY24-27E," it said while suggesting a target price of Rs 4,450.