Avenue Supermarts Shares Plunge Amid Sell Ratings and Competition Fears

Avenue Supermarts, the parent company of DMart, saw its shares drop 6.7% on Monday, the steepest decline in nearly two years. This fall came after Citi and Goldman Sachs maintained their 'sell' ratings following the company's second-quarter business update. Investors are concerned about rising competition in quick-commerce and the stock's high valuation.

The stock closed at 3,555, marking its sharpest one-day drop since October 14, 2024. Citi kept its target price at 3,300, while Goldman Sachs set its target at 3,800. Citi expressed caution due to the company's expensive valuation at 61 times estimated FY28 earnings and risks to same-store growth and earnings from increasing competition.

Citi emphasized that sustained store expansion and improved throughput will be crucial to support valuation multiples. So far this year, Avenue Supermarts is down around 6%, while the benchmark Sensex and Nifty have each gained 0.6%. The company reported standalone revenue growth of 18.4% year-over-year in the second quarter of FY27, up from 15.1% in the first quarter. Avenue added 15 stores in the second quarter, bringing the total additions in the first half of FY27 to 18, compared with 17 in the same period last year.

Goldman Sachs based its 'sell' thesis on a mismatch between Avenue's growth prospects and its valuation. The firm expects revenue growth to moderate to below 20%, down from around 30% previously, due to competition from quick-commerce platforms like Blinkit and Swiggy, as well as larger retailers such as Reliance. Goldman Sachs noted that competitive intensity will likely continue to rise in large cities, putting pressure on Avenue's same-store sales growth.