Avenue Supermarts shares plummet 9% on weak Q2; here’s what analysts say

Shares of Avenue Supermarts, which owns and operates D-Mart stores, plunged over 9% in opening trade on Monday after the supermarket chain reported weak earnings in the September quarter of the current fiscal. The Radhakishan Damani-led company has posted tepid growth in July-September period amid lower productivity of stores as well as fast ramp-up of quick commerce services in large metro cities.

On Monday, Avenue Supermarts shares opened lower for the third straight session at ₹4,247.95, down 7% against the previous closing price of ₹4,572.35 on the BSE. Extending opening losses, the DMart retail chain operator’s stock declined as much as 9.4% to ₹4,143.60, while the market capitalisation slipped to ₹2.77 lakh crore.

Shares of Avenue Supermarts touched its 52-week high of
₹5,484 on September 24, 2024, and a 52-week low of ₹3,618.85 on October 25, 2023. The retail stock has given 9% returns in the last one year and nearly 4% in the calendar year 2024. In the past six months, the counter lost 10%, while it eroded 19% in the last one month.

For the second quarter ended September 30, 2024, Avenue Supermarts reported 5.77% growth in its consolidated net profit at ₹659.58 crore as compared to ₹623.56 crore during the same period last year. Revenue grew 14.41% to ₹14,444.5 crore, up from ₹12,624.37 crore in the year ago period. On the operating front, earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose by 29.3% to ₹1,093.8 crore, from ₹846 crore in the corresponding previous of the last fiscal.

Analysts view on D-Mart’s Q2

Citing disruption from quick commerce, ICICI Securities has downgraded Avenue Supermarts shares to “Reduce” from “Add”, with a revised target price to ₹4,100 per share from ₹5,400 earlier. “Overlap of consumers seeking convenience and shopping at DMART (value) appears to be higher than expected which should continue to impact its growth trajectory. Further, scale-up of DMART Ready continued to be significantly lower (+21% YoY in 1HFY25) vs quick commerce despite lower absolute size,” it says in a note.

“We cut our earnings estimates by 14% / 17% for FY25E/FY26E due to lower revenue growth assumptions (impact of quick commerce) and operating margins (due to operating deleverage), modelling revenue/ EBITDA/PAT CAGR of 17%/16%/15% over FY24-26E,” the brokerage says.

Another domestic brokerage Nuvama has retained ‘HOLD’ on the stock, but cut the price target to ₹5,040 from ₹5,183 earlier. “Building in the impact of online grocery players and weakness in Dmart’s H1FY25 showing, we are cutting FY25E revenue/EBITDA/PAT by 3%/4%/7%,” it says.

The report highlights that D-Mart Ready’s growth slowed to 22% YoY in H1 FY25 from 32% in FY24. “Management acknowledged that online grocery formats are having a noticeable effect on its high-performing metro stores.”

Meanwhile, Motilal Oswal has maintained a ‘BUY’ rating on the stock with a target price of ₹5,300. However, the brokerage lowered the earnings estimates amid weaker store productivity. “D-Mart added six stores in Q2 FY25 (12 in H1 FY25). Accelerated store additions remain the biggest growth driver for D-Mart and we expect the pace of store additions to pick up in H2 FY25 (four added in Oct’24).”

“We lower our FY25/FY26 revenue estimates by 2/4%, EBITDA estimates by 6/10% and EPS by 8%/14%, as weaker store productivity and higher CoR offset slightly higher store additions,” it says in a report.

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