DMart Shares in Focus After Q1FY26 Disappoints Brokerages on Margin Decline, Competition

On Monday, the Dmart share price was up 1.25 percent, touching a day’s high of Rs. 4,115, and now it is trading below its previous closing price after DMart disclosed its financials for Q1FY26. The company’s consolidated revenue for the quarter ended June 30, 2025, grew 16.3 percent year-on-year to Rs. 16,359.7 crore, compared to Rs. 14,069.1 crore in Q1FY25. This robust topline expansion was driven by healthy demand and the addition of nine new stores, bringing the total count to 424. However, EBITDA rose by just 6.38 percent to Rs. 1,299 crore, with the EBITDA margin declining to 7.9 percent from 8.7 percent a year earlier. Net profit was nearly flat at Rs. 773 crore, down marginally from Rs. 774 crore in the same quarter last year, reflecting the impact of margin compression and higher operational expenses. The PAT margin slipped to 4.7 percent from 5.5 percent in Q1FY25, and earnings per share stood at Rs. 11.88, which is almost flat year-on-year.

Operationally, DMart continued its expansion strategy, opening nine new stores during the quarter and expanding its retail footprint to 17.6 million square feet. Stores older than two years delivered a same-store sales growth (SSSG) of 7.1 percent, indicating sustained customer traction even as the company faced headwinds from deflation in staples and non-food products. Management pointed out that revenue growth was adversely affected by about 100 to 150 basis points due to high deflation in these categories. The gross margin contracted year-on-year, primarily because of heightened competitive intensity in the fast-moving consumer goods (FMCG) segment and persistent pricing pressures. Operating costs increased as the company invested in improving service levels and capacity building and dealt with wage inflation at entry levels.

CEO and Managing Director Neville Noronha highlighted that DMart achieved strong revenue growth despite the challenging environment, with older stores (two years and above) posting 7.1 percent growth in the quarter. He acknowledged that deflation in staples and non-foods, as well as intense competition in FMCG, weighed on sales growth and gross margins, and the impact of the company’s operating costs. He reiterated DMart’s commitment to value retailing and operational efficiency while recognising the need to navigate a competitive landscape and maintain customer loyalty.

Brokerage reactions to the Q1FY26 results were largely cautious. Many analysts noted that DMart’s results fell short of consensus estimates on revenue, EBITDA, and net profit, raising concerns about persistent margin pressures. Macquarie raised the target price from Rs. 3,000 to Rs. 3,100 and maintained an ‘underperform’ rating, citing a significant downside risk and highlighting the company’s slow adaptation to market changes and ongoing margin compression. Morgan Stanley reiterated an ‘underweight’ stance, flagging missed earnings expectations and warning that continued competitive intensity and investments could weigh on near-term performance with a target price of Rs. 3,350.

HSBC held a ‘Reduce’ rating, pointing out that EBITDA margins have now declined for five consecutive quarters and expressed skepticism about near-term margin recovery, even with aggressive store expansion plans, and priced its target of Rs. 3,600. JPMorgan maintained a ‘Hold’ recommendation, appreciating DMart’s intent to accelerate store and e-commerce expansion but noting that margin softness may persist in the near term with a price target of Rs. 4,150. Other brokerages, such as Motilal Oswal and Nuvama, offered mixed recommendations, with Motilal Oswal maintaining a ‘Buy’ and Nuvama suggesting a ‘Hold,’ both adjusting earnings estimates to account for higher costs and competition.