Avenue Supermarts’ D-Mart Shares May Fall by 19%, Citi Advises Sell

DMart Share Price

D-Mart Shares: Avenue Supermarts Stock May Fall by 19%! Citi Advises “Sell”

Shares of Avenue Supermarts, the parent company of India’s popular D-Mart supermarket chain, have come under significant scrutiny from global brokerage firms, with Citi forecasting a potential decline of up to 19%.

The brokerage has maintained a “sell” rating on the stock, setting a target price of Rs 3,350 per share, which represents a 17% downside from the stock’s closing price of Rs 4,039 on April 4, 2025.

Alongside Citi’s cautious stance, Morgan Stanley has also downgraded its view, giving an “underweight” rating with a target price of Rs 3,260 per share, suggesting a 19% decline from current levels.

This bearish outlook has raised concerns among investors who have been closely monitoring the stock, especially after its recent surge.

Stock Performance and Market Trends

Avenue Supermarts, which operates the D-Mart retail chain, saw its stock fall by as much as 5% during the trading day on April 4.

The share price dropped to a low of Rs 3,941.05, only to recover slightly by the end of the day, closing at Rs 4,039, which was still nearly 3% lower than the previous day’s price.

Despite the daily decline, the stock has seen significant growth over the past month, rising 18%. This fluctuation underscores the ongoing volatility surrounding the stock, as investors weigh the company’s growth potential against the broader challenges facing the retail industry.

Avenue Supermarts has a market capitalization of Rs 2.6 lakh crore, making it one of India’s largest and most influential retail companies.

Its stock has attracted a lot of attention from both retail and institutional investors, particularly because of its dominance in the retail sector and its continued expansion.

However, concerns about future growth, particularly with respect to competition and the pressures on margins, have led several analysts to revise their expectations.

Quarterly Performance and Business Update

In a business update for the January-March 2025 quarter, Avenue Supermarts revealed solid revenue growth.

The company reported a 17% year-on-year increase in its standalone revenue, reaching Rs 14,462.39 crore, compared to Rs 12,393.46 crore in the same quarter of the previous year.

This increase was partly driven by the opening of 28 new stores during the quarter, bringing the total number of stores to 415 by the end of March 2025.

For the entire financial year 2025, Avenue Supermarts added 50 new DMart stores to its portfolio, reflecting its continued expansion and commitment to increasing its presence across India.

Despite this strong revenue performance, Citi has raised concerns about the company’s long-term prospects.

While revenue growth has been steady, Citi noted that the company’s average revenue per store grew by just 3.1% year-on-year in the March 2025 quarter.

This represents a slowdown compared to the previous four quarters, during which the growth rate had ranged from 1-7%.

Citi’s caution stems from a combination of factors, including the intensifying competition in the Indian retail market, increasing store openings, and pressure on earnings due to factors like lower throughput and an unfavorable product mix.

Additionally, Citi pointed out the company’s high price-to-earnings (P/E) multiple, which could pose a risk in a market environment that is increasingly cautious of overvalued stocks.

Rising Competition and Operational Challenges

The retail landscape in India is becoming increasingly competitive, with a growing number of players vying for market share.

While D-Mart has long been considered a dominant force in the value retail segment, the expansion of rivals like Reliance Retail, Big Bazaar (Future Retail), and even e-commerce giants like Amazon and Flipkart has put pressure on its market position.

As competition intensifies, Avenue Supermarts faces the challenge of sustaining its growth while maintaining profitability.

Another challenge for Avenue Supermarts is the increasing number of stores. While the expansion of its physical footprint is generally seen as a positive, it also introduces new complexities.

The company must ensure that each new store is profitable and that the overall increase in the number of stores doesn’t dilute the performance of existing locations.

Moreover, increasing store numbers could potentially lead to diminished returns per store, especially if it becomes harder to sustain the same level of footfall or sales in mature locations.

The company also faces operational challenges, particularly with respect to managing a more diverse product mix.

While D-Mart’s core strength lies in offering affordable products to price-sensitive customers, the company has to balance cost control with ensuring a variety of products to attract a broader consumer base.

An unfavorable product mix—where lower-margin items dominate—can put pressure on the company’s overall profitability, especially in a highly competitive environment.

Financial Ratios and Stock Valuation Concerns

One of the major points raised by Citi in its bearish stance is Avenue Supermarts’ high price-to-earnings (P/E) multiple.

The P/E ratio is a key indicator used by investors to assess whether a stock is overvalued or undervalued relative to its earnings.

A high P/E ratio, especially in a volatile market, can signal that a stock may be overpriced. In the case of Avenue Supermarts, the stock’s valuation may be too high relative to the company’s earnings growth prospects, particularly given the current challenges in the retail space.

The high P/E ratio has become a concern for investors who may be wary of holding onto the stock in the face of potential downside risks.

While the company has been successful in maintaining a strong market presence, there are growing doubts about whether this will translate into sustained earnings growth, especially with the headwinds the retail industry is facing.

As such, analysts like Citi and Morgan Stanley have recommended investors consider reducing their exposure to the stock or adopting a more cautious approach until there is more clarity on its future growth trajectory.

Promoter Stake and Ownership Structure

As of the end of December 2024, Avenue Supermarts’ promoters held a substantial 74.65% stake in the company.

This reflects the significant control that Radhakishan Damani, a veteran investor and one of India’s most prominent businessmen, holds over the company.

Damani’s backing has been a key factor in Avenue Supermarts’ success, as his strategic decisions have largely driven the company’s growth over the years.

However, even with strong promoter backing, the stock’s performance is still influenced by broader market trends and investor sentiment.

With major brokerages like Citi and Morgan Stanley advising caution, the question of whether Avenue Supermarts can continue to grow at a rapid pace becomes more pertinent.

Analyst Sentiment and Future Outlook

Despite the recent drop in the stock price, Avenue Supermarts’ future remains a topic of debate among analysts. As of now, the stock has received mixed ratings from the 31 analysts covering it.

Out of these, 12 analysts have issued a “buy” rating, while 9 analysts have given it a “hold” recommendation.

However, 10 analysts have recommended selling the stock, citing the risks mentioned earlier. This split in analyst sentiment reflects the uncertainty surrounding the company’s future, as it navigates both internal challenges and external market forces.

Final Remarks: Is It Time to Sell?

Avenue Supermarts’ stock has performed well in recent months, but growing concerns over increasing competition, a slowdown in same-store sales growth, and its high valuation have led some analysts to adopt a cautious stance.

While the company continues to expand and generate solid revenue, the risk factors highlighted by brokerages like Citi and Morgan Stanley suggest that there could be significant downside potential in the stock.

For investors, it may be wise to evaluate their position in the stock carefully, considering both the short-term market trends and the long-term growth prospects of Avenue Supermarts.

As the company faces a challenging retail environment, the coming months will be crucial in determining whether its growth trajectory can be sustained.