The Radhakishan Damani-led Avenue Supermarts Ltd has posted a weak set of September quarter results, with Ebitda missing the Street estimates on lower productivity and higher cost on retailing, resulting in lowering of earnings projections for FY25 and FY26.
Analysts said DMart's sales were impacted by increasing competition from the online grocery format, especially quick commerce, in metro cities. They cut their earnings projections for FY25 and FY26 and suggested either Hold or Buy on the stock, saying the scrip now trades 10 per cent below its long-term average. "We cut our Ebitda estimates by 6-10 per cent over FY25-27E. The key monitorable for DMart would be its ability to fight competition from online groceries and recovery in general merchandise & apparel. We maintain HOLD recommendation with a revised target price of Rs 5,026 (previously Rs 5,098), as we roll forward to FY27 based on 45 times EV/Ebitda(implying 70x FY27E EPS)," Antique Stock Broking said.
Centrum Broking said a subdued discretionary spending and competitive pressure led to the muted Q2 results. The brokerage tweaked its earnings estimates but said it has upgraded the stock to 'Buy' after the recent price correction and suggested a revised target price of Rs 5,655. The stock is down 11 per cent in the past one month.
MOFSL said DMart’s revenue growth remains dependent on its ability to add store area. With the increase in capex, it believes store additions can pick up pace starting H2FY25. It factoring in 40 store addition in FY25, 45 in FY26 and 50 in FY27.
"DMart's LFL growth has been recently impacted by a moderation in inflation and a fast ramp-up of quick commerce services. We would watch out for impact of quick commerce on DMart LFL growth and the ramp-up in DMart Ready over the next few quarters. We lower our FY25/FY26 revenue estimates by 2 per cent/4 per cent as weaker store productivity partly offsets higher store additions," it said.
The brokerage cut its Ebitda estimates by 6 per cent/10 per cent and EPS by 8 per cent/14 per cent for FY25 and FY26.
"Building in the impact of online grocery players and weakness in DMart’s H1FY25 showing, we are cutting FY25E revenue/Ebidta/PAT by 3 per cent/4 per cent/7 per cent. This along with a rollover to H1FY27E yields a revised target price of Rs 5,040 (earlier Rs 5,183); retain ‘HOLD’," the broking firm said.