DMART FACES RISING QC Threat as Kotak Reiterates ‘Sell’ Call With 20% Downside

Dmart share price in focus: Domestic Brokerage Firm Kotak Institutional Equites, In its Recent Note, maintained a cautious stance on DMART, Citing Rising Competition in the Quick Commerce (QC) Space. While The Brokerage Remains Optimistic About DMARS Physical Store Expansion – Expecting Its Store Count to Grow from 415 Currently to 620 by FY28E –IT Flagged intensifying present from data Players, who are rapidly expanding their geographic footprint across India.

Kotak Believes This Cold Result in Heightened Price Competition, Especially as DMART Grapples with Increasing Employee and operating costs. The brokerage has therefore reiterated its ‘Sell’ rating on the stock, with a target price of 3,400, implying a downside of 20.35% from the last closing price.

DMART recently Announced The Opening of a New Store in Agra, Uttar Pradesh (UP). Up is a large, popular state, and the move potentially Signals more store additions in the region. Kotak notes that while d-mart was alredy present in ghaziabad, it has not meaningfully expanded beyond

The brokerage consumers the up expansion to be in line with expectations, Reference DMART’s July 2024 Analyst Call, where uttar pradesh and orissa werened as key Growth Markets. However, QC Players have alredy captured significant ground in these regions. Blinkit now has a presence in 26 cities in UP, While Instamart, Zepto, and BB Now Operate in 13, 8, and 9 Cities, Respectively.

Nationally, Blinkit has expanded to 194 cities, Instamart to 116, and Zepto to 73 – Outpacing DMART, which currently has a presence in 151 cits.

The brokerage further highlights that over 100 cits now at least one QC Player but no dmart store – Gandressive Push of QC Players Into Tier 2 and Tier 3 MARKETS. Additional, DMART Lacks Any Store Presence in 13 Indian States, Including Assam, Bihar, and Chandigarh, Where Blinkit and Instamart are already operational.

D-Mart Eyes Margin Gains Through Private Labels AMID QC Headwinds

In response to competitive pressure, dmart has been increasing its focus on private-Label products to Protect Margins. While it has historically offered private labels in bulk grocery segments such as grains, pulses, and flourrs, the retailer is now actively expanding into branded categories like biscuits, Home and Personal Care Products (Detergents, Soaps, Hair Oils, etc.).

Kotak’s Recent Store Visits Indicate An Increasing Amount of Shelf Space Devoted to these products, which are significantly cheaper and closely renemple their branded counterparts in pacaging in pacaging.

Most of these products appear similar (in looks, packaging, etc.) to their branded counterpart.

The brokerage believes that this is a clear effort by dmart to defend gross margins while delivering better value to customers. However, it also also cauted that the ramp-up in private labels may only Partialy offset the impact of QC-LED Footfall Erosion and Rising Cost Pressures.

Disclaimer, The views and recommendations giving in this article are that of individual analysts. These do not represent the views of Mint. We Advise Investors to Check With Certified Experts Before Taking Any Investments Decisions.