In today’s trading session, shares of DMart experienced a notable dip of 3% following the release of its Q4 fiscal results over the weekend. Operated by Avenue Supermarts and backed by investor Radhakishan Damani, the retail giant reported mixed outcomes for the January-March quarter of 2024-25 (Q4FY25), raising concerns among investors about the company’s future profitability.

Overview of Avenue Supermarts’ Q4 Performance

Avenue Supermarts, the parent company of DMart, disclosed a 2% decline in its consolidated net profit, totaling ₹551 crore, compared to ₹563 crore from the previous year. However, on a standalone basis, the company’s net profit improved by 2.6%, reaching ₹619.71 crore, up from ₹604.20 crore in the same quarter last year.

• Standalone revenue surged to ₹14,462.39 crore, marking a 17% increase from ₹12,393.46 crore in the prior year.
• The decline in consolidated profit reflects ongoing pressures on profit margins.

Margin Pressures and Operational Costs

Despite the growth in revenue, DMart’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) fell short of expectations, coming in at around ₹980 crore, which is 9% below projections. Year-over-year, EBITDA saw a modest rise of 4%, yet margins contracted significantly by 80 basis points, landing at 6.8%—a figure that surprised analysts negatively.

• The increase in operating costs per square foot by approximately 12% has contributed to this margin compression.
• Jefferies India Pvt Ltd highlighted that heightened competition in the FMCG sector and rising wage costs have compounded these challenges.

Analysts’ Reactions and Future Outlook

Experts are concerned about DMart’s reduced margins, which could signal tougher competition ahead. Jefferies described the situation as a significant downside, noting that management attributes the margin compression to rising service-level investments and competitive pressures. The company has accelerated store openings, with plans for the new CEO to take charge in the next 4-5 months, while the outgoing CEO focuses on expanding e-commerce and new store launches.

• Jefferies has revised its Earnings Per Share (EPS) estimates downward by 4-7%, maintaining a Hold rating on the stock.
• Motilal Oswal Financial Services similarly adjusted its FY26-27 EBITDA estimates down by 5% each, citing increased competitive intensity and rising costs. They continue to support a BUY rating but have lowered their target price from ₹4,650 to ₹4,350.

As DMart navigates these challenges, its ability to maintain profitability and manage operational costs will be critical in the coming quarters. Investors are advised to stay informed as the situation develops.