Goldman Sachs expressed disappointment on DMart, possibility of pressure due to increasing competition

Global brokerage firm Goldman Sachs has expressed its disappointment over DMart’s parent company Avenue Supermarts. Due to increasing competition, there is a possibility of increasing pressure on the company’s position. Due to this, Goldman Sachs has reduced the target price of DMart shares from ₹4,000 to ₹3,425, which indicates a downside of about 10%.

Change in discount strategy of Dmart

To maintain its competitive position in the market, DMart has increased its discount rates. In December, DMart had offered up to 25% off MRP on a basket of grocery products. Whereas in July this year the discount was only 15%. This means that the company is adopting a more aggressive strategy to woo customers. However, such a strategy may impact the company’s margins.

Weaknesses in Goldman Sachs’ analysis

Goldman Sachs believes that:

1. DMart does not have any significant competitive advantage in the fresh food category in the urban market.
2. DMart is still not able to reach the vast grocery market of India.
3. The company needs to expand outside the top 10 cities, where growth potential exists.

cut income estimates

Goldman Sachs has cut Avenue Supermarts’ earnings estimates for fiscal years 2025, 2026, and 2027 by 4.2%, 6.2%, and 6.1%, respectively. The main reason for these cutbacks is declining profit margins due to competition and discounting.

Disappointment with September quarter results

Avenue Supermarts’ results for the September quarter did not meet the expectations of brokerage firms. However, there has been a slight increase in the company’s profits:

• Profit:
  The company’s profit rose 5.8% to ₹659.6 crore in the September quarter, from ₹623.6 crore in the same period last year.
• Revenue:
  Revenue grew by 14.4% to reach ₹14,444.5 crore, compared to ₹12,624.4 crore last year.

Although these figures show growth, they are below the expectations of brokerage firms.

CLSA’s positive opinion on DMart

At the same time, Hong Kong-based brokerage firm CLSA is optimistic about DMart. CLSA believes that the company’s private label strategy is in the right direction. Private label products are those that are owned and sold solely by the retail store.

Benefits of Private Label Strategy

1. Cost Control:
   Private label gives the company more control over its products, which keeps costs down.
2. brand value:
   This allows DMart to strengthen its own brand and provide exclusive products to customers.
3. Competing with competition:
   This strategy will help DMart to get ahead of other competitors.

CLSA has maintained its ‘Outperform’ rating on DMart, indicating that the company may perform better in the future.

The way forward for DMart

In view of the increasing competition and changing market conditions, DMart needs to take some important steps:

1. Regional expansion:
   The company will have to expand beyond the top 10 cities into smaller towns and rural areas.
2. Investment in fresh food category:
   It will be necessary to invest to strengthen our competitive position in the fresh food category.
3. Expansion of digital platforms:
   By venturing into the online grocery market, DMart can expand its reach through e-commerce.
4. Use of latest technologies:
   There has to be a focus on technological advancements to improve customer experience.