DMart shares at Rs 3,700? Target prices as high valuation poses de-rating risk

June quarter results of Radhakishan Damani-led Avenue Supermarts (DMart) failed to impress Dalal Street analysts as revenue growth missed estimates, new store count moderated, and like for like (LFL)  growth was likely flat for metros. High valuation poses de-rating risk, analysts said adding that store addition remains a key growth lever.

Emkay Global suggested a 'Sell' on the stock with a target of Rs 3,700. It said primary disappointments stem from slower growth in bill size and likely slower ramp-up in new store additions. After a bump in Q4, the like-for-like (LFL) growth normalized to 5.5 per cent in Q1, largely led by maturing of new stores, with older stores in large metros seeing a flat growth trend. 

"Revenue mix improved, with faster growth in the General Merchandise and Apparel segment (up 19 per cent), driving a 50bps gross-margin gain. However, ongoing growth investments restricted Ebitda margin gain to ~10bps and led to slower PAT growth of 13 per cent," Emkay said. 

Equirus Securities said DMart's revenue growth slightly missed its expectations due to flat metro LFL against its estimates, implying 14-15 per cent non-metro LFL. This is on assumption that  metros contribute 60 per cent of DMart's revenues. 

"Bills per store declined 4.4 per cent YoY despite 1.5 per cent YoY average selling price (ASP) growth, indicating a sharper mid- to high-single-digit volume drop in metros. Gross margin improved YoY while Ebitda margin expansion remains limited, due to higher store operating cost. We retain Accumulate with a target of Rs 4,700, with key triggers being non-metro LFL, H2 store additions, and stable margin," it said.

Nuvama said DMart added three stores in the first quarter, taking total store count to 503, slightly slow, but the trend may pick up notably in the second half of the year. The planned NCD fund raise approval of Rs 1,100 crore does indicate a pickup in pace of store openings, Nuvama said.

It said the growth in consolidated minus standalone piece, which serves as proxy for DMart Ready was 5.5 per cent for Q1FY27 against 20 per cent in Q1FY26. The management continues to deepen the company's focus on large metropolitan cities while refining the operating model. During the quarter, the company discontinued operations in seven cities, which were marginal contributors and is now present in 11 cities. 

"The performance has sharply deteriorated from a 20 per cent growth profile to 5 per cent growth in the current quarter while losses have increased to Rs 75.30 crore from Rs 56.90 crore and Rs 68.20 crore in Q1FY26/Q4FY26," it said while maintaining a 'Hold on the stock with a revised target of Rs 4,383 from 4,974 earlier. 

After accelerated store expansion in Q1, the pace of store additions moderated to three stores in Q1 and remains a key growth lever, MOFSL said.

"We assign a 40 times September 2028 EV/Ebitda multiple (implying 72 times September 2028 P/E) to arrive at our revised target of Rs 4,800. We reiterate BUY on DMart," MOFSL added.