Shares of DMart Fall 4% Following Q4 Earnings Release, Resulting in ₹9,300 Crore Promoter Wealth Erosion

DMart's Earnings Growth Surpasses Expectations, But Valuations Raise Concerns

The Indian retail giant, DMart, has reported profitability ahead of expectations, but analysts are cautioning that the current valuations do not allow for any errors amid challenges such as slowing like-for-like (LFL) sales growth, rising competition, margin headwinds, and losses at DMart Ready.

According to Elara Capital, DMart's earnings growth for the fiscal years 2026 to 2028 is estimated at around 20% by consensus, underpinned by healthy store additions, stable LFL growth of around 7-7.5% year-over-year, and broadly steady margins. At ₹4,586, the stock trades at around 64x/55x FY27/FY28 consensus earnings, leaving limited room for error.

The significant investments in store expansion, prior to stores becoming operational, are weighing on return on capital employed (RoCE), as highlighted by Antique Stock Broking. The net block grew at a 22% compound annual growth rate (CAGR) during FY22-26, in line with revenue growth of 22% CAGR over the same period. Management has previously noted that real estate inflation has adversely impacted RoCE, resulting in a contraction of around 117 basis points (bps) year-over-year to 15.9% in FY26 from 17.1% in FY25. During FY26, DMart also reported negative free cash flow of ₹4 billion, driven by capital expenditure of ₹40 billion.

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Going forward, analysts see an improvement in revenue as an inflationary environment and FMCG price hikes may support ticket sizes. However, the sustainability of the improving margin trend is uncertain. Elara Capital notes that quick commerce is straining DMart's LFL and margins, particularly given its high FMCG and general merchandise assortment (GMA) exposure. Some margin respite may emerge as players such as Swiggy Instamart pivot toward profitability, while new e-commerce entrants such as Zepto appear less inclined toward heavy discounting.

In light of accelerated store openings, Antique has increased its FY27-28 estimates by around 2%/8% and maintained a HOLD rating with a revised target price for DMart shares at ₹4,524 from ₹4,185, based on 40x FY28 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).