DMart Slips 3% Despite Strong Q4; Valuation, Competition Concerns Weigh

Avenue Supermarts Ltd, the operator of the DMart retail chain, witnessed a nearly 3 percent decline in share price on April 4, closing at approximately Rs 4,039 per share, even as it reported robust business updates for Q4 FY25. The sell-off ended the stock’s two-day rally and came in spite of a 16.7 percent year-on-year increase in standalone revenue and record store expansion during the quarter.

Q4 FY25 Update: Revenue Surge and Aggressive Expansion

In its quarterly update, Avenue Supermarts announced that its standalone revenue from operations surged to Rs 14,462 crore in Q4 FY25, up from Rs 12,307 crore a year ago. This performance signals a continued post-pandemic recovery in consumer demand for essentials, which remain DMart’s core strength. The company also added 28 new stores in the January–March 2025 quarter, the highest quarterly net addition in its history, bringing the total count to 415 stores across India.

This expansion aligns with the firm’s strategy to deepen its presence in underserved markets, particularly in Tier II and III cities. However, the sharp growth in footprint comes amid growing caution from analysts, who point to rising competitive pressures and challenges in sustaining margins, especially in a high-interest rate and low discretionary-spend environment.

Highlights:

• Q4 FY25 standalone revenue grew 16.7% YoY to Rs 14,462 crore

• 28 new stores added in Q4, bringing total to 415

• Record expansion quarter for DMart in terms of store additions

• Focus continues on Tier II & III cities amid market saturation in metros

Analyst Downgrades: Citi, Morgan Stanley Cite Valuation, Margin Risks

Despite the strong top-line performance, Citi Research maintained its ‘Sell’ rating on Avenue Supermarts with a target price of Rs 3,350, implying a downside of over 19% from the previous close of Rs 4,158. The brokerage expressed concern over the high price-to-earnings (P/E) ratio, which stood at 99.48, significantly above industry averages, suggesting the stock remains overvalued despite recent corrections.

Citi also flagged challenges including an unfavourable product mix, slowdown in discretionary consumption, and mounting competition from quick commerce players, such as Blinkit, Zepto, and Swiggy Instamart. The note emphasized that while DMart remains strong in its essentials and food staples segments, it is yet to fully recover in non-food categories like apparel and general merchandise.

Morgan Stanley echoed a similar view, retaining an ‘Underweight’ rating with a target price of Rs 3,260, pointing to a nearly 22% downside from current levels. The brokerage noted that DMart’s five-year compound annual growth rate (CAGR) of 18.5% was below its FY24 average of 20%, signaling a modest slowdown in business momentum.

Highlights:

• Citi maintains ‘Sell’ with Rs 3,350 TP; cites high P/E of 99.48

• Notes unfavourable product mix and pressure from quick commerce

• Morgan Stanley gives ‘Underweight’ rating with Rs 3,260 TP

• Sees lower-than-expected 5-year CAGR at 18.5%, vs. 20% in FY24

Market Sentiment Remains Fragile Amid Broader Retail Sector Concerns

The fall in DMart’s stock mirrors a broader cautious sentiment in the retail and FMCG sector, especially as global macroeconomic volatility—including escalating tariff wars and slowdown in discretionary spending—begin to weigh on investor expectations. Moreover, despite strong expansion in store count, analysts remain skeptical of the company’s ability to maintain historical margins given the intensifying pricing battle with e-commerce and quick delivery models.

Another point of concern is the slowing velocity of sales in newly added stores, many of which are located in smaller towns where consumer wallet sizes are more sensitive to inflation and job market fluctuations. With no margin of error in such high P/E stocks, even minor performance disappointments could trigger strong market reactions.

Highlights:

• Broader retail sector seeing cautious investor sentiment

• Tariff tensions and weak discretionary demand affecting outlook

• Slower sales ramp-up in Tier II/III cities could hurt efficiency

• Analysts remain wary of margin compression from discount wars

Execution Strength Remains, But Near-Term Valuation Risks Persist

Despite the recent fall, Avenue Supermarts continues to be viewed as a high-execution company with a resilient business model, especially in the food and staples segment. The stock’s long-term thesis remains intact for many institutional investors, particularly those with exposure to India’s domestic consumption growth story. However, in the near term, most analysts agree that valuation concerns, competition dynamics, and profitability pressure in new geographies are likely to weigh on the stock.

As more earnings details are expected later this month, investor focus will be on same-store sales growth, gross margins, and outlook on discretionary categories. In the absence of a significant recovery in these metrics, the stock could continue to underperform relative to broader indices, especially given the lofty expectations already baked into its valuation.

Highlights:

• Strong execution remains a long-term positive

• Near-term challenges include competition and valuation pressure

• Investors await earnings call for deeper insights into margin trajectory

• Stock likely to remain under pressure if discretionary recovery is delayed