Shares of Avenue Supermarts Ltd, the operator of the popular retail chain DMart, experienced a significant decline of 3.6% on May 5, 2025, hitting an intraday low of Rs 3,916.15 on the Bombay Stock Exchange (BSE). This drop followed the release of the company's fourth-quarter earnings, which revealed disappointing profit figures and margin compression.
In the fourth quarter of FY25, Avenue Supermarts reported a standalone net profit of Rs 619.71 crore, marking a 2.6% increase year-on-year from Rs 604.2 crore in the same period last year. However, this figure represented a stark 21% decline from the previous quarter's profit of Rs 784.65 crore. Revenue from operations rose 16.7% year-on-year to Rs 14,462.39 crore, up from Rs 12,393.46 crore in Q4 FY24. Yet, sequentially, revenue dipped by 7% from Rs 15,565.23 crore reported in Q3 FY25.
Total expenses for the quarter increased to Rs 13,713 crore, reflecting a year-on-year rise but a decrease of 5.7% quarter-on-quarter from Rs 14,549.07 crore. For the full financial year FY25, profit after tax grew by 8.6% to Rs 2,927.18 crore, compared to Rs 2,694.92 crore in FY24. The company's EBITDA rose to Rs 4,543 crore from Rs 4,099 crore the previous year, although the EBITDA margin narrowed to 7.9% from 8.3%, indicating cost pressures.
Market analysts were quick to respond to the earnings report. HDFC Institutional Equities noted that while DMart's revenue growth of 16.7% year-on-year aligned with expectations, the margins surprised negatively. They reported that the EBITDA margin contracted by 80 basis points year-on-year to 6.8%, attributing this decline to increased competitive intensity in the fast-moving consumer goods (FMCG) sector, rising wages due to a demand-supply mismatch, and ongoing investments to enhance service levels.
"We’ve cut our FY26/27 EPS estimates by 7% and 4%, respectively, to account for higher expansion-led costs, especially in employee and depreciation expenses," HDFC Institutional Equities stated. They maintained an ADD rating with a discounted cash flow-based target of Rs 3,850 per share.
Motilal Oswal Financial Services (MOSL) also reiterated its Buy rating on Avenue Supermarts but revised its target price downward to Rs 4,350 from Rs 4,650. They cited heightened competition in the market, particularly with the entry of large offline and online retailers into quick commerce, as a concern that could impact DMart's growth and margins in the near term. Despite these challenges, MOSL expressed confidence in DMart's value-driven model and strong store-level economics, which they believe will help the company maintain its competitiveness.
Nuvama, another brokerage, maintained a Hold call on DMart with a target price of Rs 4,273. They acknowledged that DMart was able to sustain a 15% plus growth trajectory for both Q4FY25 and the entire fiscal year. However, they also noted pressure on gross margins due to increased competition in the FMCG space.
As of May 5, shares of Avenue Supermarts had fallen approximately 12% over the past year. Despite this, the stock has provided returns of 5% and 78% over the last three and five years, respectively. However, analysts pointed out that DMart's performance in the last year has lagged behind the Sensex, Nifty50, and the broader industry.
In the aftermath of the earnings announcement, Radhakishan Damani, the ace investor and promoter of DMart, saw a notional loss of Rs 6,100 crore as the value of his family's 74.65% stake in the company decreased from Rs 1,97,248 crore on Friday to Rs 1,91,144 crore on Monday.
DMart has been expanding its footprint, adding a record 28 stores during Q4FY25, bringing its total store count to 415. The company has also been investing in its e-commerce arm, DMart Ready, which has expanded its reach to 25 cities. However, losses from this format are expected to continue in the near term.
Despite the challenges, analysts are optimistic about DMart's long-term potential. They believe the company's operational efficiency and ability to offer competitive pricing will help it navigate through the current competitive landscape. The consensus among analysts remains cautiously optimistic, with most maintaining a Buy or Hold rating on the stock.
As the retail landscape continues to evolve, DMart's strategies in addressing competition and managing costs will be closely watched by investors and market analysts alike. The company's ability to sustain growth while maintaining profitability will be critical in the coming quarters.
