Nuvama cuts target price for DMart (Avenue Supermarts) stock by nearly Rs 1000 post Q3 results

Nuvama has maintained a ‘HOLD’ rating on Avenue Supermarts (DMart) following its Q3FY25 earnings, citing pressure on margins amid rising competition and the company’s focus on market share over profitability.

Nuvama has maintained a ‘HOLD’ rating on Avenue Supermarts (DMart) following its Q3FY25 earnings, citing pressure on margins amid rising competition and the company’s focus on market share over profitability. The brokerage has revised its target price downward to ₹4,212 from ₹5,040, reflecting a significant reduction in revenue and PAT estimates for FY25 and FY26 by 0.5%/11% and 2.1%/17.4%, respectively.

Strong revenue growth and store expansion

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DMart reported a 17.5% YoY revenue growth and a 10.8% QoQ increase for Q3FY25, underpinned by a blended like-to-like (LFL) growth of 8.3%. Revenue per square foot stood at ₹39,035, up 3% YoY but still 2% below pre-COVID levels. Bills cut per store rose 3.4%, while the average bill size remained flat.

The company opened 10 new stores during the quarter, bringing the total count to 387. Over 9MFY25, DMart added 22 stores compared to 17 in the same period last year and is on track to meet its annual target of 45 new stores, aided by its pattern of higher Q4 store additions.

DMart Ready’s steady growth

DMart Ready, the company’s e-commerce arm, recorded a 21.5% growth in H1FY25, continuing its strong trajectory following a 32% full-year growth in FY24. Improved delivery execution has bolstered the segment, although higher discounts, particularly in the FMCG category, have weighed on profitability.

Margin pressures persist

Gross margins declined to 14.1%, missing estimates of 14.5% and dropping 10 basis points YoY and 40 basis points QoQ. The decline was attributed to customers favoring food over non-food products, driven by price competition in the food segment amid quick-commerce competition. Operating expenses rose due to service improvements and future investments, causing EBITDA margins to remain below pre-COVID levels at 7.9%, despite a 10.2% YoY growth in EBITDA to ₹10.3 billion.

Nuvama anticipates that DMart’s margin pressures will persist as management prioritizes market share growth. While the company’s robust store expansion strategy and revenue growth remain key positives, the challenges of maintaining profitability in a competitive environment weigh on its outlook.