Explained: Why DMart shares plunged 9% in early trade today

The sharp decline in shares came after DMart's second-quarter earnings failed to meet the market's expectations.

In Short

• DMart shares fall 9% after disappointing Q2 earnings report
• Brokerage firms downgrade DMart; target prices slashed significantly
• Analysts concerned about costs, store performance, and future growth

DMart’s parent company, Avenue Supermarts, saw its shares drop by 9.3% in early trade on Monday, hitting a low of Rs 4,143.60 on the Bombay Stock Exchange (BSE). The sharp decline came after several brokerage firms downgraded the stock, lowering its target price to as low as Rs 3,702. The reason? DMart’s second-quarter (Q2) earnings did not meet the market's expectations.

While DMart reported an 8% year-on-year (YoY) rise in profits, the numbers were still disappointing because its profit after tax (the money left after all expenses) actually fell by more than 12% compared to the previous quarter.

The company’s total revenue for Q2 was Rs 14,050.32 crore, up 14% from last year’s Rs 12,307.72 crore. However, this wasn’t enough to satisfy investors or analysts who expected better performance.

One key factor dragging DMart down is the increasing competition from the "quick commerce" sector (think fast deliveries from online grocery platforms). These platforms are eating into DMart’s market, especially in metro cities.

Here’s how some of the big brokerage firms viewed DMart’s Q2 results:

JPMorgan: Neutral | Target price: Rs 4,700

JPMorgan downgraded its rating from Overweight to Neutral and reduced its target price from Rs 5,400 to Rs 4,700. They mentioned that DMart is facing rising costs and competition from online grocery platforms, which is affecting its performance, particularly in large cities. This, combined with a slower pace of growth in its existing stores, has hurt its margins.

Morgan Stanley: Underweight | Target price: Rs 3,702

Morgan Stanley took a more cautious approach, downgrading the stock from Overweight to Underweight, with a big cut in the target price—from Rs 5,769 to Rs 3,702. The firm noted that DMart’s sales and profit margins were weaker than expected, and the growing competition from online grocery stores could make it hard for DMart to achieve its 20% growth target.

Nuvama: Hold | Target price: Rs 5,040

Nuvama maintained a Hold rating on the stock but lowered its target price from Rs 5,183 to Rs 5,040. They pointed out that DMart’s store performance was weaker in Q2, with only a 5.5% rise in sales from its existing stores compared to 9.1% in the previous quarter. DMart’s online grocery service, DMart Ready, also saw slower growth, which further disappointed investors.

Prabhudas Lilladher: Hold | Target price: Rs 4,748

Prabhudas Lilladher downgraded DMart from ‘Accumulate’ to Hold, reducing its target price from Rs 5,168 to Rs 4,748. They highlighted that online competitors were hurting DMart’s sales, especially in metro cities, where its stores saw slower sales growth. DMart’s costs also went up, as the company opened six new stores during the quarter.

For retail investors, the message is clear: DMart’s performance is being affected by rising competition from fast-delivery grocery platforms and higher costs.

While the company is still growing, it’s not meeting expectations, which is why brokerages are downgrading the stock. If you already hold DMart shares, it might be worth watching how the company responds to these challenges in the coming quarters before making any big decisions.

Therefore, investors who are thinking of buying the stock should keep an eye on the company’s ability to compete with online grocery platforms and manage its costs effectively. At around 10:55 am, shares of the company were trading 7.86% lower on the BSE at Rs 4,212.90.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)