DMart shares: RK Damani stock sees target cuts post Q1 results; here's why  

DMart Q1 results review: A couple of brokerages have cut their target prices on the Radhakishan Damani-led retailer Avenue Supermarts (DMart), following the company's June quarter (Q1) results. Nuvama reduced its target on DMart to Rs 4,086 from Rs 4,273 earlier, while maintaining a 'Hold' rating on the stock. MOFSL reiterated its 'Buy' rating, but cut its target price on the stock to Rs 4,500 from Rs 4,800 earlier. 

The reduction in the price target comes as the brokerages believe pressure in margins for DMart to continue, given the competitive trends. Nuvama cut its profit after tax estimates for FY26 by 6 per cent and FY27 by 8 per cent. For this brokerage, the Q1 results were in-line. 

"DMart logged impressive 7.1 per cent LFL growth despite major deflation in staples and non-food, boosted by a 3 per cent larger average bill. This came at a cost: gross margin fell 27 bps while Ebitda margin fell 66 bps. The squeeze was due to a shift in sales mix towards lower-margin food (+79 bps impact), capacity investments on better service and rising entry-level wages," Nuvama said.

MOFSL said DMart's Q1 was a 5 per cent miss on Ebitda and a 7 per cent miss on PAT due to continued margin pressures. It has reduced its FY26-28 Ebitda estimates by 2-3 per cent due to lingering pressure on gross margin, while it cut  its FY26-28E EPS estimate by 5-6 per cent on higher finance cost.

"With the entry of large offline/online retailers into quick commerce (QC), we expect pricing competition to remain intense over the near term, which could weigh on growth and margins for DMart in the interim. However, we believe DMart’s superior store economics would ensure its competitiveness and relevance to customers over the longer term," MOFSL said.

For the quarter, average bills per store per day—a proxy for store traffic—was marginally down YoY for DMart. The average bill size, which surged during the pandemic due to stockpiling, has remained elevated even with DMart's expansion into new regions. 

"This suggests that customers are utilising the saving from product deflation in non-food and staples in other food categories (an 80bp increase in food's share)," Nuvama said.

The domestic brokerage said the incremental store space added in Q1FY26 of 44.5k is higher than the company wide average of 41.5k sq ft. The company continues its cluster based expansion strategy. 

"Its recent expansion in Uttar Pradesh (UP) marks the entry into a new state after six years. The hope is that its cluster-based expansion would accelerate with more stores being opened in UP," Nuvama said.

During FY12-20, DMart sustained a consistent SSSG above the 10 per cent print. However, that has come off with older stores maturing. The company derives its competitive prices from right product assortment, lower payable days, right location size and cluster-based store expansion, among others. 

For Q1, DMart reported standalone revenue growth of 16.2 per cent YoY, with Blended like for like (LFL) growth for the quarter came in at 7.1 per cent. Revenue per square feet increased 2 per cent YoY to Rs 36,626 on an annualised basis. 

"Revenue growth was affected by 100–150 bps YoY primarily due to high deflation in many staples as well as non-food products. DMart has added nine stores this quarter, taking the total store count to 424. DMart had added six stores in Q1FY25. It implies TTM addition of 53 stores," Nuvama said.