Global brokerage Goldman Sachs reiterated its bearishness on retail major Avenue Supermarts, the parent of supermarket player DMart, as its competitive moat faces increasing pressure. AS a result, shares of the consumer firm sank over three percent.
The brokerage cut its target price on DMart to Rs 3,425 per share, down from Rs 4,000 earlier, indicating a downside of 10 percent.
At 9.20 am, DMart shares were trading lower by 2.1 percent at Rs 3,735.55 per share.
In an attempt to maintain its competitive advantage, DMart has been increasing its price discounts. The price discounts offered by DMart for a basket of grocery produce have increased to 25 percent over MRP in December, up from a range of 15 percent over MRP in July this year.
The brokerage added that DMart does not have any competitive advantage in fresh food categories in urban settings, and large sections of India's grocery market are not addressable by DMart.
Therefore, according to the brokerage, its key growth headroom is outside the top 10 cities. The brokerage trimmed its earnings estimates for FY25/26/27 earnings, by 4.2 percent/6.2 percent/6.1 percent in an attempt to account for lower revenue growth.
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DMart parent Avenue Supermarts earnings show for the quarter ended September left brokerages disappointed, as the revenue and net profit fell below expectations.
The retail major's net profit for the second quarter of the current financial year rose by 5.8 percent on-year, reaching Rs 659.6 crore, compared to Rs 623.6 crore in the same period last year.
For the quarter, Avenue Supermarts revenue rose by 14.4 percent YoY to Rs 14,444.5 crore, up from Rs 12,624.4 crore year-on-year.
Hong Kong-based brokerage CLSA is bullish on DMart as the firm is making an appropriate pivot to private labels, which will place it well to meet future competition. Private labels are brands which are owned and sold solely by the owner of the retail store. As a result, CLSA maintained its 'outperform' rating on DMart.
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