Key factors behind 4% drop in DMart share price on Monday; here is what investors should know

Shares of Avenue Supermart, one of India’s leading retail superstore chains, opened nearly 4% gap down on Monday after the company declared its Q2FY27 results on Saturday. The shares were consistently under pressure since the company announced its Q2 business updates earlier this month. The shares have fallen more than 11% after the company released the business updates for Q2FY27.

The company delivered robust double-digit revenue and operating profit growth for the quarter ended September 2026. The net profit also jumped in high single digits for the period under review.

Dmart Q2FY27 review

The company’s consolidated revenue from operations stood at ₹19,644 crore as compared to ₹16,676 crore in the same period last year. On a standalone basis, the revenue stood at ₹19,206 crore, up 18% YoY from ₹16,219 crore in the same period last year. During the quarter, the company added 18 new stores, taking the total store count to 518 from 500 at the end of FY26.

At the operating level, the EBITDA for the quarter stood at ₹1,403 crore, up 14.1% YoY from ₹1,230 crore in the previous year. The EBITDA margin stood at 7.3% vs 7.6% in the same period last year. Lastly, the bottom line grew by 7.6% YoY to ₹804 crore as compared to ₹747 crore in the quarter ended September 2025.

At the surface level, DMART’s Q2FY27 results look promising, delivering strong double-digit revenue growth and steady profit growth for the quarter. However, cracks open at a lower level as you see contracting operating margins, increasing inventory, and declining return on net worth. Here are the top three factors from the investor presentation that soured sentiments.

Contracting margins

The EBITDA (Earnings before Interest, Taxes, and Depreciation) grew 14.6% YoY, but the EBITDA margin for the quarter contracted by 30 bps to 7.3% vs 7.6%. Similarly, the profitability margins also declined by 40 bps to 4.6% in the same period last year, compared to 4.2% in Q2 FY27. Management addresses that wage inflation at the entry level has led to marginal increasing in the operating expenses, denting some margins for the quarter. In addition, the high-margin apparel business continues to remain stagnant at 23.4 of the total business, while the low-margin food segment contributes more than 57% as of H1FY27.

Increasing inventory days

Besides declining operating margins, the company is also holding more inventory at its stores, leading to a slower conversion cycle for the acquired goods. The total inventory days increased from 33.2 days to 36.1 days in the quarter ended September 2026. Slower conversion may lead to a poor cash conversion cycle and could also lead to higher working capital requirements.

Declining Return on Net Worth

The return on net worth has fallen to the lowest level in three years. According to the company’s investor presentation post the earnings release, the return on net worth as of H1FY27 has fallen to 6.6 from 13.5% in Q1FY27 and 6.8% in H1FY26. In simple terms, the company is generating little profit for every rupee of equity invested. Furthermore, it also implies that the company’s new investments are not generating the same returns as the previous investments did. This also indicates poor capital allocation and efficiency on the capital employed.

What do global brokerages say?

After the Q2FY27 results, the global brokerage houses’ views are divided. Bernstein continues to remain optimistic about the company with Q2FY27 results, saying the like-for-like store growth of 9.5% underscores continued resilience of the value-grocer business model. Jefferies continues to maintain its view on the company, but says the profitability growth disappointed due to higher-than-expected wage inflation. However, CITI said the company’s profit growth has lacked revenue growth in 11 out of 14 quarters, led by stiff competition from quick commerce companies, lower other income and higher interest expenses.