DMart Q2 growth underwhelms as brokerages split on Avenue Supermarts stock; analysts flag store expansion risks

DMart stock has rallied 27 percent in the last one year, compared to Nifty's gain of around 30 percent during this period.

Brokerages delivered a divided outlook on DMart’s stock following the supermarket chain's Q2FY25 business update on Thursday.

Avenue Supermarts, the operator of DMart, reported a 14 percent year-on-year growth in standalone revenues to Rs 14,050 crore for the quarter ended September 2024. However, several analysts highlighted concerns over the pace of growth.

Morgan Stanley remained 'Overweight' on Avenue Supermarts with a target price of Rs 5,769 as it noted that while standalone Q2 revenue fell short of estimates, operational metrics improved, albeit at a slower pace.

The growth trend was unexpectedly weaker, prompting the brokerage to await further clarity from the management during the upcoming Q2 results on the reasons behind the slower growth.

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Macquarie continued to rate DMart as 'Outperform' and has set a target price of Rs 5,600. Although sales growth has slowed compared to Q1 levels, store additions also slightly missed expectations. Macquarie anticipates a sequential moderation in gross margins due to changes in the product mix.

Goldman Sachs, meanwhile, retained a 'Sell' rating with a target price of Rs 4,050. The firm highlighted a sharp slowdown in growth, likely affected by the rise of quick commerce (Q-Commerce).

Growth moderation is attributed to a slowdown in Same Store Sales Growth (SSSG), leading to a 2 percent reduction in FY26 and FY27 EPS estimates.

As of September 30, the Radhakishan Damani-owned company operated a total of 377 stores across the country. The company had opened six new stores during the quarter. It aims to add 45 stores in FY25 with the medium-term band at 45-60 stores per annum. However, analysts at Goldman Sachs flagged risks in store expansions.

Citi is also bearish on DMart with a 'Sell' rating and a target price of Rs 3,350 per share. The brokerage believes throughput is being negatively impacted by an unfavourable product mix and store additions, with six new stores added during the quarter.

Given the risks surrounding store expansions and earnings, Citi remains cautious at the current valuation.

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DMart shares closed marginally lower at Rs 4,941 on NSE in the previous session. The stock has risen 21 percent so far this year, slightly outperforming Nifty's returns of 16 percent. In the past 12 months, the counter has rallied 27 percent, compared to Nifty's gain of around 30 percent during this period.

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