DMart is focussing on being a cost-effective grocer, but the market wants it to be more than that

• DMart’s consolidated revenue stood at a two-year high at ₹9,217 crore last quarter, but it has failed to impress analysts once again.
• Analysts like ICICI Securities have cut the future earnings estimate by 9% for the financial year 2022 as sales from fashion shy away.
• While ICICI Securities has issued a ‘Sell’ call for DMart’s shares, Motilal Oswal has remained ‘Neutral’.

Avenue Supermarts, the company that runs retail chain DMart, showed a 24% growth in profit on an annual basis, but the stock has lost 5% since the earnings.

The good news for investors is that it has managed to cut costs further. But analysts like ICICI Securities have cut the future earnings estimate by 9% for the financial year 2022 and 1% for the fiscal year 2023. The stock brokerage firm now models revenue growth of 32% by FY2024.

The fear is that India's second biggest retailer is not seeing the writing on the wall.

“Consensus (continues to) believe that DMart is a linear and secular growth story. We disagree. This analyst's >20 years consumer experience suggests that in India, nuances matter more. We disagree with consensus' over-enthusiasm of BAAP (Buy At Any Price),” ICICI Securities added.


Those fears seem to be valid considering that the sale of fashion and general merchandise categories were down. These are the categories where more consumers have shifted to online purchases. According to a Redseer report on India’s online festive season sale in the September-December quarter of 2021, the sale of fashion items through online channels doubled.

However, DMart’s chief executive officer (CEO) Neville Noronha is clear on what he wants to do for now. "We are seeing higher inflation as an opportunity to make our buying more efficient, our assortment sharper and continue to keep our costs low."

Motilal Oswal agrees that the cost optimisation since pre-COVID has enabled DMart to improve its EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins. But one cannot go far without ecommerce.


As per the report by Motilal Oswal, DMART (Avenue Supermarts) needs to be cautious of three factors — competition making significant changes in the business model to go big on ecommerce, the presence of deep-pocketed players such as Amazon and Reliance Retail in this domain, and the overlapping of local markets.

Tata too has jumped in this domain with the acquisition of ecommerce player BigBasket, and Amazon and Reliance are stepping on the accelerator by making deliveries faster. Reliance acquired 25% stake in quick commerce company Dunzo last week for a whopping $200 million. Players like Swiggy and Zomato-backed Blinkit (Grofers) are too in this domain.

DMart Ready — Avenue Supermarts’ subsidiary that focuses on ecommerce — continued to scale-up with an annual growth of 40% to ₹153 crore. This is less than 2% of DMart’s overall revenue.

“Watch out for DMart (and modern retail) potentially getting disrupted like how India skipped wireline penetration and jumped directly to wireless,” ICICI Securities added.

If the analysts are right, DMart may be the Nokia or Blackberry of this decade. If the management is right, this may be the most audacious stance against the consensus. One for both management and history books.

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