DMart Q1 miss triggers margin concerns; brokerages turn cautious on outlook

Nuvama maintained a 'Hold' rating on DMart, and revised its target price to ₹4,086 from ₹4,273, citing sustained margin pressure.

Avenue Supermarts, the operator of DMart, reported a mixed set of June quarter (Q1FY26) results that fell short of Bloomberg consensus estimates across revenue, Ebitda and net profit, prompting analysts to adopt a more cautious stance. 

 

Mounting margin pressures amid heightened competition, deflation in staples, and rising operating costs have left brokerages on a wait and watch mode, with many trimming estimates and target prices despite strong revenue growth and store additions.

 

Revenue for the quarter (Q1FY26) rose 16.3 per cent year-on-year (Y-o-Y) to ₹16,359.7 crore, but missed the Bloomberg estimate of ₹16,583 crore. Ebitda grew 6 per cent Y-o-Y to ₹1,299 crore, trailing the expected ₹1,354 crore. The Ebitda margin slipped to 7.9 per cent, down from 8.7 per cent a year ago and below the 8.2 per cent consensus. Net profit was flat at ₹773 crore, also missing the street’s estimate of ₹883 crore.

 

 

The company attributed the revenue growth impact of 100–150 basis points (bps) to deflation in key categories and noted that gross margins remained under pressure due to continued competitive intensity within FMCG. 

 

Higher operating costs, driven by store expansion and inflation in entry-level wages, also weighed on profitability. DMart added nine new stores in the quarter, bringing the total to 424 as of June 30.

 

Brokerages flagged the narrowing margin trajectory and shift in sales mix as near-term concerns.

 

Nuvama maintained a ‘Hold’ rating and revised its target price to ₹4,086 from ₹4,273, citing sustained margin pressure. It highlighted that while the company delivered 7.1 per cent like-for-like (LFL) growth, deflation in food and non-food staples led to a gross margin squeeze of 27 basis points and Ebitda margin contraction of 66 bps. Thus, Nuvama cut its FY26/27 profit estimates by about 6 per cent/8 per cent.

 

ICICI Securities reiterated its ‘Reduce’ rating with a target price of ₹3,800, citing muted profitability and sluggish LFL sales growth, which slowed to 7.1 per cent from 9.1 per cent a year ago. The brokerage noted that revenue per sq. ft. remained 5-6 per cent below pre-Covid peaks and flagged weak conversion from revenue to profit due to elevated costs. It continues to model 19 per cent PAT CAGR over FY25-27E but remains cautious pending strategic clarity under the new CEO.

 

Meanwhile, Motilal Oswal reiterated its ‘Buy’ call but reduced the target price to ₹4,500 from ₹4,800, noting pressure on margins and cost of retailing, despite strong store additions. It expects margin headwinds to persist in the near term due to competitive pricing and investments, but remains optimistic about DMart’s long-term store economics and scalability.

 

JPMorgan also retained a ‘Hold’ rating with a target price of ₹4,150, acknowledging solid LFL growth and ongoing expansion but warning of continued margin compression due to higher investments, according to reports. It sees the upcoming annual management interaction as a key catalyst.

 

Others were more bearish. Morgan Stanley reportedly maintained an ‘Underweight’ with a target price of ₹3,350, flagging continued earnings disappointment and intensifying competition as drivers of valuation de-rating. HSBC echoed this cautious tone with a ‘Reduce’ rating and a target price of ₹3,600, noting this was the fifth straight quarter of Y-o-Y margin decline, according to reports. While store expansion remains aggressive, the brokerage does not view it as sufficient to offset profitability concerns.

 

Overall, analysts are largely aligned in their view that while Avenue Supermarts continues to deliver steady top-line growth through store additions, the structural pressures on margins – especially from competition, wage inflation, and an unfavourable sales mix – remain key risks. 

 

The market is now awaiting signals of a strategic shift, particularly on improving margins and digital execution under the new leadership.