DMart Share Price Fell by 9.47%: 5 Major Reasons!

With the festive season in full swing and e-commerce platforms thriving, have you wondered why DMart’s parent company, Avenue Supermarts (DMart) share price plummet by 9.47% in early trade on Monday?

The stock hit a low of Rs 4,139 on the NSE, down from its previous close of Rs 4,572. This sharp drop has left many investors questioning what went wrong for one of India’s leading retail chains. Let’s look into the five key factors behind this disappointing performance in the stock market. [Source: NSE]

5 Reasons for DMart’s Share Price Drop

1. DMart’s underwhelming Q2 results

DMart’s Q2 earnings were disappointing, even with a 6% year-on-year increase in net profit.

• Revenue vs. Expectation: Revenue for the Q2 results stood at Rs.14,050.32 crore, a 14% rise from Rs 12,307.72 crore last year. However, this fell short of analyst expectations, with the market hoping for stronger growth.
• Profit Decline: The 12% sequential drop in profit after tax (PAT) compared to the previous quarter caught investors off guard. This decline in profitability overshadowed the YoY revenue rise, indicating inefficiencies and rising costs.
• Brokerage Downgrades: Following these results, several brokerages, including Bernstein, downgraded DMart’s stock with target prices as low as Rs 3,702, further shaking investor confidence. The underperformance reflects that even though the company is growing, it is not growing fast enough to meet market expectations.

Source: Economic Times

2. Increasing competition from quick commerce

The rise of quick commerce platforms like Swiggy Instamart, Dunzo, and Zepto has intensified competition in DMart’s core metro markets.

• Shift in consumer preferences: These platforms offer ultra-fast grocery deliveries (within 10-30 minutes), making them an attractive option for urban customers seeking convenience. As a result, DMart has lost some foot traffic and customer share, particularly in metropolitan areas.
• Impact on DMart Ready: Although DMart has its own online service, DMart Ready, it has struggled to match the rapid fulfillment times offered by these competitors. The management has acknowledged that quick commerce is having a noticeable effect on the company’s high-performing metro stores.
• Long-term threat: The quick commerce model has disrupted traditional brick-and-mortar retail, and DMart will need to respond swiftly and strategically to regain its competitive edge.

3. Slow Revenue Growth

DMart’s revenue growth has significantly decelerated compared to its past performance.

• Revenue Sluggishness: According to Bernstein, DMart’s revenue growth was the slowest in four years, and like-for-like (LFL) growth was the weakest in three years, at just 5.5% in Q2. This is a sharp decline from the company’s consistent growth of over 10% in previous years.
• Maturity of Older Stores: Part of this slowdown is due to the natural maturity of older stores. As DMart’s early stores reach capacity, their contribution to growth has diminished, dragging down the overall performance.
• Comparing Quarter-on-Quarter: In Q1FY25, DMart posted a 9.1% LFL growth, but in Q2, this dropped to 5.5%, marking a worrying trend of deceleration.

4. Rising operational costs

DMart is grappling with rising costs as it scales up operations and invests in service improvements.

• Higher Employee Costs: In an effort to improve customer experience and expand future capabilities, DMart’s employee costs have increased more than expected, cutting into profitability.
• EBITDA Margin Squeeze: The company’s EBITDA margin contracted by 27 basis points (bps) YoY, reflecting the impact of higher overheads. These expenses are tied to better service offerings, but the immediate financial impact has been negative.
• Modest Margin Expansion: On the positive side, general merchandise and apparel sales recovery led to a slight expansion of gross margins by 21 bps YoY. However, this was not enough to offset the hit from operational costs.
• Ongoing Investment: While these cost increases aim to strengthen DMart’s long-term positioning, they are weighing on short-term profitability, a concern for investors looking for immediate returns.

5. Slowdown in store additions

Store expansion, a critical part of DMart’s growth strategy, slowed down in Q2.

• Fewer Store Openings: DMart opened six new stores in Q2, compared to nine in the same period last year. This brought the total store count to 377. While the company typically opens more stores in the second half of the fiscal year, the slower pace in the first half has raised concerns about overall growth.
• Growth Potential: Analysts, including Bernstein, remain hopeful that DMart will reach its target of adding 45 new stores by the end of FY25. The company has demonstrated its ability to expand aggressively, driving revenue growth.
• Future Outlook: DMart’s ability to return to a 20% growth trajectory depends on its success in adding new stores and increasing retail area. Store expansion remains critical for DMart, as it allows the company to penetrate new markets and reach more customers.

What Lies Ahead for DMart?

Despite the current challenges, DMart remains a key player in India’s retail space. Analysts believe the company could return to its previous growth trajectory if it manages to overcome competition from quick commerce platforms and continues to focus on store expansion. However, these efforts may take 3-5 quarters to reflect in DMart’s financials fully. 

Conclusion

DMart’s 9.47% drop in share price reflects several pressing challenges, from disappointing earnings to rising competition and operational inefficiencies. While the company remains a strong player in India’s retail sector, it must address these issues head-on to regain investor confidence and maintain its growth momentum. How DMart adapts to the rapid rise of quick commerce and manages its cost structure will be crucial in determining its performance in the coming quarters.

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