9% Jump, New CEO, Bigger Bet on North—Why DMart Isn’t a Buy Just Yet, Says PL Capital
- 31st July 2025
- 02:00:00 PM
- 5 min read
Despite market optimism post Analyst Meet, PL Capital remains cautious on margins, valuation, and execution risks
Mumbai | July 31 – Shares of Avenue Supermarts, the operator of DMart retail stores, surged nearly 9% over two sessions, closing at ₹4,346.80 on the NSE. The rally follows the company’s Annual Analyst Conference 2025, which laid out strategic clarity around North India expansion, a CEO transition, and a clear positioning for DMart Ready.
But while the stock has gained favour among investors, PL Capital is holding its ground.
In its latest update dated July 30, 2025, PL Capital reiterated its ‘HOLD’ rating on the stock with a target price of ₹3,994, citing valuation concerns and pressure on return metrics.
“Although growth rate over the next couple of years is expected to be higher than past two years, accelerated capex and gradual decline in ROE will prevent any major re-rating from current valuations of 78.7x June FY27 EPS,” the report stated.
Read PL Capital’s earlier Q1FY26 analysis and HOLD stance here
Analyst Meet Takeaways: What’s Driving the Rally?
The company’s Q1 FY26 results were not spectacular. Revenue rose 16.3% YoY to ₹16,359 crore, but net profit stayed flat at ₹773 crore—below consensus expectations. EBITDA margins declined by 74 bps YoY to 7.9%, and gross margins contracted 28 bps to 15.3%.
However, the Analyst Meet helped shift investor attention from short-term earnings to long-term strategy.
North India: A Focused Growth Frontier
DMart announced a renewed strategic focus on North India, which it sees as a high-potential market.
“Store expansion is expected to accelerate from current levels, with a particular focus on the northern region… Uttar Pradesh presents a significant growth opportunity as one of the largest states, and management remains confident in the growth potential of the northern region,” PL Capital wrote.
The company continues to favour an owned real estate model, with the management open to modest debt financing when opportunities arise. According to PL Capital, “DMart is likely to consider raising funds through debt to support its accelerated store expansion, targeting the opening of 20% higher stores (50 new stores in FY25) in the near to medium term.”
Leadership Shift: Operational Focus and Strategic Oversight
The meet also confirmed that Anshul Asawa will become CEO from February 2026, while current CEO Neville Noronha will continue to lead expansion efforts. “Current CEO will personally oversee the northern expansion for six months until the end of his term in January 2026,” the report noted, highlighting the management’s hands-on approach to scaling in newer markets.
DMart Ready: Staying Away from Quick Commerce
While most online players are chasing sub-10-minute delivery models, DMart Ready is taking a different approach.
“D-Mart Ready has expanded its reach, especially in metro cities, and aims to maintain healthy double-digit sales growth by focusing on value and reducing delivery time to within six hours,” PL Capital reported.
Despite growing 21% in FY25, DMart Ready’s losses widened by 34% YoY to ₹2,487 crore due to rising operating expenses. “Losses for D-Mart Ready have significantly increased… primarily due to higher operating expenses, which rose 29.3% YoY. This came alongside moderate sales growth of 21%, as competitive pressure from quick commerce players remains high,” the note said.
The focus remains on scaling the platform with operational discipline, not chasing unsustainable unit economics.
Private Labels: A Strategic Margin Lever
DMart is also betting on private labels for long-term margin expansion. The company follows a “20-20-20” principle—entering categories only where it can achieve:
- 20% category share
- 20% lower pricing than branded alternatives
- 20% higher margin profile
“DMart believes in scaling in penetrated categories rather than creating newer ones, and categories must be well-established, with strong consumer demand and scope for value disruption,” PL Capital observed.
Still a HOLD: Valuation and Margin Pressures Persist
Despite the optimism, PL Capital maintains a HOLD rating. The stock is currently trading at over 78x FY27E EPS, with ROE expected to decline to 12.5% over the next two years.
“D-Mart’s annual analyst call reinforced our cautious stance due to rising land acquisition costs, increasing wage inflation, and a deteriorating product mix which can further pressurize margins,” the report highlighted.
The apparel segment remains structurally weak, and general merchandise—historically a high-margin contributor—has not recovered to pre-COVID contribution levels.
Conclusion: Growth Is Back, but So Are the Questions
DMart’s Analyst Meet has injected new momentum into the stock. A targeted expansion strategy, operational clarity, and e-commerce discipline have appealed to investors eager for a long-term retail growth story. Without clear visibility on margin recovery and DMart Ready’s path to profitability, the stock’s rich valuation offers limited near-term upside.
PL Capital
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
