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Prabhudas Lilladher, a renowned research firm, has downgraded Avenue Supermarts, the parent company of D'Mart, from 'Accumulate' to 'Hold' with a revised target price of Rs 4748 (previously Rs 5168). This decision follows a disappointing performance in the second quarter of fiscal year 2025 (Q2FY25), where both revenue and profit after tax (PAT) fell short of the firm's estimates.
The report attributes the missed targets to several factors, including the impact of quick commerce and online grocery platforms on sales in major metropolitan areas. Additionally, D'Mart experienced a decline in same-store sales growth (SSG) to 5.5% in Q2FY25, compared to 9.5% in the preceding quarter. This trend, combined with tepid growth in other key metrics like sales per store and sales per square foot, suggests a slowdown in D'Mart's growth trajectory. While general merchandise and apparel sales showed some improvement, the report notes that the loss of sales to value formats like Zudio and Reliance Trends is likely permanent.
Despite these challenges, the research firm maintains a positive outlook for D'Mart's long-term growth. The report highlights D'Mart's recent store additions, the expansion of its same-day delivery service (D'Mart Ready), and its potential for further growth in a duopoly market. Prabhudas Lilladher anticipates a 18.4% compound annual growth rate (CAGR) in sales and a stable margin of ~8.1%, enabling a 18.5% PAT CAGR over FY24-27. However, the firm acknowledges the need to closely monitor sales trends during the upcoming festival season to gauge D'Mart's ability to navigate the current market conditions.
Source: Hold Avenue Supermarts; target of Rs 4748: Prabhudas Lilladher