DMart shares slip 9% after downgrades from brokerage firms on Q2 miss

Shares of Avenue Supermarts-held DMart slipped 9.3% in an early trading session on Monday to day’s low of Rs 4,143.60 on the BSE as the company earned several downgrades from various brokerage firms with the target price going down to Rs 3,702 as Q2 earnings disappointed the Street.

The company reported an 8% YoY jump in the Q2 profit, which was weighed down by the increasing impact of the quick commerce segment.

However, profit after tax for the reported quarter decreased by over 12%, falling from Rs 812.45 crore in the April-June quarter.

Revenue from operations stood at Rs 14,050.32 crore, reflecting a 14% increase compared to Rs 12,307.72 crore reported in the same period last year.

Here is how brokerages viewed the Q2 results:

JPMorgan: Neutral | Target prices: Rs 4,700

JPMorgan has downgraded the stock’s rating to Neutral from Overweight and reduced the target price to Rs 4,700 from Rs 5,400. The downgrade reflects LFL moderation and rising costs affecting Q2 results, along with pressure on large metro stores from online competition. Increased investments are impacting operating margins, while the quick commerce effect has been greater than expected in Q2. The continued expansion of this segment may further affect stock performance despite recent corrections.

Morgan Stanley: Underweight | Target price: Rs 3,702

Morgan Stanley has downgraded the stock to an underweight rating from overweight and cut the target price to Rs 3,702 from Rs 5,769. Q2 results fell short of Morgan Stanley’s expectations for both top-line performance and margins, and concerns about competition from online grocery formats cast doubt on achieving 20% top-line growth, potentially leading to further de-rating.While online and offline can coexist, companies cannot remain solely defensive. Furthermore, this growth disappointment may necessitate a reduction in expectations until the company develops multiple avenues for growth.

Nuvama: Hold | Target price: Rs 5,040

Nuvama has maintained a hold rating on the stock and reduced the target price to Rs 5,040 from Rs 5,183. DMart reported a weak Q2 FY25 due to lower store productivity, with LFL growth of 5.5% year-on-year, significantly down from Q1 FY25’s 9.1%. For H1 FY25, LFL growth stands at 7.4%. Increased operating expenses aimed at improving service levels have compressed the EBITDA margin.

Additionally, DMart Ready’s growth slowed to 22% year-on-year in H1 FY25, down from 32% in FY24. Management acknowledged that online grocery formats are having a noticeable impact on its high-performing metro stores.

Prabhudas Lilladher: Hold| Target price: Rs 4,748

Prabhudas Lilladher has downgraded DMart to a hold rating from an ‘accumulate’ and reduced the target price to Rs 4,748 from Rs 5,168.

This downgrade follows disappointing retail metrics, as quick commerce and other online grocery platforms impacted sales in metro cities. Same-store sales growth (SSG) declined to 5.5% in Q2, down from 9.5% in Q1. Other growth parameters were also weak, with a 1.2% year-on-year increase in sales per store, 1.6% year-on-year in bills per store per day, and only a 0.5% rise in sales per square foot. Additionally, retail costs increased by 65 basis points as DMart opened six new stores in Q2 FY25.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)