DMart stock poor show may continue, but there are triggers to reverse it too

DMart’s pre-quarter update for the second quarter of 2025-26 (Q2FY26) disappointed the market but several analysts continued to issue “Buy” recommendations.

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Revenue grew by 15.4 per cent year-on-year (Yo-Y), led by 55 net store additions Yo-Y, taking the total to 432 stores. Profitability is likely to be subdued due to elevated operating costs, and competitive intensity. DMart opened net eight new stores during the quarter (net 17 stores added in the first half of the financial year, or H1FY26), with one store temporarily closed for reconstruction.

The foray into UP and North India provides headroom for aggressive expansion but its return on capital employed (RoCE) in the near term will be low due to aggressive expansion. The company targets 10-15 per cent growth in stores Yo-Y, which implies 70-80 stores could be added in FY26 versus 50 stores in FY25. Profitability at gross margin level has been largely stable in the band of 14-14.5 percent during FY21-FY25. However, Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin has seen high volatility due to higher operating expenses to ensure better customer experience and servicing.