DMart bear warns of more earnings downgrades, flags 'elevated valuations'

Shares of Avenue Supermarts Ltd., the parent company of the DMart hypermarket chain, are trading lower on Wednesday, December 17, amid mixed brokerage commentary.

Goldman Sachs has maintained a 'Sell' rating on the stock with a price target of ₹3,425, implying an additional downside of about 11% from current levels.

The brokerage wrote in its note that the company's earnings downgrade cycle is likely to continue. It flagged store additions running below expectations, which raises the risk of missing estimates.

Further, Goldman Sachs warned that competition from quick commerce players is expected to intensify in the second half of the year.

Avenue Supermarts is trading at a high valuation of about 75 times its expected FY27 earnings.

To factor in slower growth due to rising competitive intensity, the brokerage has slashed its EPS estimates by 1-3% for FY26-FY28.

In contrast, CLSA reiterated its 'High Conviction Outperform' rating on Avenue Supermarts a day earlier. The brokerage has a price target of ₹6,300 per share on the counter.

CLSA analysed free cash flow trends across global retailers such as Walmart, Costco and BIM, citing that early expansion phases typically see negative free cash flow due to rapid store additions.

As expansion normalises, free cash flow tends to turn strongly positive. CLSA said DMart could follow a similar trajectory once its store additions stabilise, adding that India's consumption outlook remains strong and the company has a deeply moated business model.

Among the 29 analysts tracking the stock, eight have a 'Buy' rating, 12 recommend 'Hold' and nine have a 'Sell'.

Shares of Avenue Supermarts were trading 0.68% lower at ₹3,830.40 in early trade. The stock is up nearly 8% so far in 2025.