Shares of retail chain D-Mart operator, Avenue Supermarts came under pressure, slipping 3% on May 5 as the company’s weak Q4 earnings performance dampened investor sentiment.
The D-Mart operator’s net profit tumbled 2.2% on year to Rs 551 crore in the March quarter, reflecting sluggish consumption trends. Its revenue, however, rose nearly 17% on year to Rs 14,872 crore, as compared to Rs 12,727 crore in the year ago period.
Regardless, the Radhakishan Damani-led company stated grappling with increased operating expenditure due to a surge in wages of entry-level positions as a major cause for a drag on its operating margins, DMart is seeing a surge in wages due to demand-supply mismatch along with elevated investments for building and improving service levels.
Consequently, the retailer's EBITDA margin moderated sharply, contracting to 6.8% in Q4, which according to brokerages, came as a negative surprise. What’s more worrisome is that the management expects this margin pressure to continue in the coming quarters.
Aside from that, D-Mart held on to store additions during the quarter gone by, adding 28 more stores in Q4, the highest-ever in a single quarter. With this, D-Mart’s total store count stood at 415.
Nonetheless, the drag on the company’s margin performance and caution over prolonged weakness in the coming time did not sit well with brokerages, sparking a series of target price cuts.
Global brokerage Jefferies slashed its price target for the stock marginally to Rs 4,100, even though it held on to its 'hold' rating for D-Mart.
Motilal Oswal Financial Services also followed cue and trimmed its price target for the stock to Rs 4,350, compared to the previous Rs 4,650, while retaining its ‘buy’ rating.
"With the entry of large offline/online retailers into Quick-Commerce (QC), we expect pricing competition to remain intense over the near term, which could weigh on both growth as well as margins for D-Mart in the interim," the brokerage wrote in a note.
Adding to the list was HDFC Securities, as the brokerage also cut its target for D-Mart lower to Rs 3,850, down from Rs 3,950. However, HDFC Securities held on a more optimistic outlook for D-Mart, stating that the company has been able to maintain its value proposition, improving assortment mix, however, doing so while retaining operational efficiency will remain the key watchful.
Meanwhile, Nuvama Institutional Equities also tweaked its FY26/27 revenue estimates for D-Mart slightly lower by 0.2%/-0.2%, building in softness in margins while PAT projections were slashed by -0.3%/-3%, respectively.
