DMart Stock Drops 4% As Metro Store Stagnation Outweighs Profit Growth

Avenue Supermarts shares dropped as much as 4.23% to ₹3,910.00 on Monday after the operator of the DMart retail chain reported fiscal first-quarter results that underscored a widening divide between its metro and non-metro footprint. Net profit rose 11.3% year-on-year to ₹860.6 crore, while revenue increased 14.9% to ₹18,794 crore for the quarter ended June 2026. However, the headline growth masked underlying operational weakness that triggered immediate downgrades from major brokerages.

The most significant red flag for investors was the deceleration in like-for-like growth, which halved to 5.5% from 10.8% in the prior quarter. Management indicated that revenue growth for older stores in large metropolitan areas was entirely flat, offset by stronger performance in non-metro locations. Additionally, revenue from sales per square foot declined 2.37% year-on-year, while EBITDA grew 15.4% to ₹1,499 crore with margins barely moving to 7.97% from 7.94%.

The operational stagnation in key urban markets points to a structural threat from the rapid expansion of quick commerce platforms, which are eroding DMart's traditional advantage in value and product assortment. To fund its continued expansion, the company's board approved the issuance of ₹1,000 crore in non-convertible debentures. This reliance on external capital highlights the increasing capital intensity required to defend market share and open new locations.

Analysts interpreted the results as a clear sign of slowing momentum. Devanshu Bansal of Emkay Global Financial Services described the quarter as "lacklustre," pointing to slower bill size growth and a likely deceleration in new store additions. "After a bump in Q4, LFL growth normalized to 5.5% in Q1FY27, largely led by maturing of new stores, with older stores in large metros seeing a flat growth trend," Bansal noted, as Emkay maintained a 'Sell' rating with a target price of ₹3,700 based on 54 times June 2028 estimated earnings.

Emkay cited concerns over slower total addressable market expansion, deteriorating return on invested capital, and a stretched valuation of roughly 70 times one-year forward earnings. Nuvama Institutional Equities also adjusted its models downward, cutting its FY27 revenue and profit estimates by 0.5% and 1.8%, respectively, while reducing its FY28 forecasts by 0.3% for revenue and 3.1% for profit. Nuvama reduced its valuation multiple to 60 times Q1FY29 estimated profit from 70 times previously.

Consequently, Nuvama cut its price target to ₹4,383 from ₹4,974, maintaining a 'Hold' rating on the stock. For market participants, the quarterly update signals that India's largest physical retailer is no longer immune to the competitive pressures reshaping the country's grocery sector.