Shares of Avenue Supermarts, the parent firm of DMart, tanked more than 8% after the company reported its second-quarter earnings over the weekend, posting its slowest revenue growth in four years.

What Happened: The retail chain posted a revenue of ₹14,050 crore, representing a 14.2% year-on-year growth. The company’s profit stood at ₹710 crore, growing 7.9% from a year ago. For the half year, revenue grew 16.2% to ₹27,762 crore whereas profit after tax rose 12.5% to ₹1,523 crore.

DMart’s quarterly EBITDA stood at ₹1,105 crore, as compared to ₹1,002 crore in the corresponding quarter of last year. EBITDA margin stood at 7.9% in Q2, compared with 8.1% in Q2FY24.

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What Do Brokerages Say? Despite the rise in revenue, most brokerages said the retailer’s numbers fell below their expectations.

Morgan Stanley downgraded the stock to “underweight” and cut the target price to ₹3,702. Avenue Supermarts missed the brokerage’s expectations for both sales and margins in the quarter.

Morgan Stanley said the management’s commentary about increased competition from online grocery services affecting like-for-like (LFL) sales growth is more concerning, which has raised doubts about achieving around 20% top-line growth and could lead to further devaluation of the stock.

JPMorgan downgraded the stock to “neutral” rating and cut its target price to ₹4,700 from ₹5,400. Second-quarter results were below the brokerage’s expectations, with revenue growth slowing to due to lower like-for-like (LFL) growth of 5.5% compared with 9.1% in Q1.

The degree of slowdown in same-store sales growth was surprising, JPMorgan said. It cut EBITDA estimates for FY25 and FY26 to 8% and 10%, respectively. 

Bernstein maintained an “outperform” rating on Avenue Supermarts with a target price of ₹5,800. The brokerage noted that the firm recorded its slowest revenue growth in four years and the slowest LFL growth in three years.

CLSA also had an “outperform” rating on the stock with a target price of ₹5,360. Both sales and profit fell short of the brokerage’s expectations. Gross margin stood at 14.2%, which was 30 basis points below its estimates and profit after tax was significantly lower due to higher-than-expected employee costs, CLSA added.

Price Action: Shares of the company plunged 8.22% to ₹4,196.65 on Monday morning.

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