DMart, once hailed as an unbeatable stock in the Indian market, has been facing a significant downturn recently. This blog unpacks the key reasons behind its decline in simple terms that everyone can understand, from children to adults. Let’s explore why DMart is falling and what it means for investors.
The Rise and Fall of DMart
DMart’s Glorious Past
DMart was once considered a no-brainer for investors. People believed it was the safest bet for long-term portfolios, with consistent growth and a robust reputation. RK Damani, the visionary founder, was synonymous with trust and exceptional business acumen.
The Current Scenario
However, the situation has drastically changed. The stock, which once peaked at 5,848 points, has dropped by 37%. Even as other indices like Nifty and small-cap stocks surged, DMart couldn’t keep up. This stark contrast raises the question: why is DMart falling?
DMart’s Financial Snapshot
Revenue and Profit Trends
In Q2 FY25, DMart’s numbers appeared decent at first glance:
- Revenue: Increased by 14.4%
- Operating Profit: Up by 8.8%
- Net Profit: Grew by 5.8%
But when we dive deeper, some concerning trends emerge:
- EBITDA margin fell from 39 basis points to 7.6%.
- Net margin dropped from 37 basis points to 4.6%.
These numbers indicate that profitability is under pressure despite growth in revenue.
What’s Going Wrong?
Declining Same Store Sales Growth (SSSG)
SSSG measures the performance of older stores. For DMart, the figures are discouraging:
- Q1 FY24: 8.1%
- Q4 FY24: 9.8%
- Q2 FY25: 5.5%
This drop means fewer customers are shopping at older stores, a worrying sign for any retail chain.
Decreasing Footfalls
The number of people visiting DMart stores is falling.
- FY23: 21.4% increase in footfalls
- FY24: Only 3.6% increase
- H1 FY25: Just 2.3%
One major reason is DMart’s focus on tier 2 and tier 3 cities, where consumer spending is generally lower.
Shift in Buying Behavior
DMart relies on customers purchasing high-margin items like appliances and clothing. However:
- High-margin products’ sales have decreased from 20.6% to 20.1%.
- Low-margin food products now dominate sales, which affects overall profitability.
The Bigger Picture: Changing Consumer Trends
Rise of Quick Commerce
The biggest disruption for DMart is the rise of quick commerce platforms like Blinkit, Zepto, and Swiggy Instamart. These apps deliver groceries and essentials directly to your home within minutes.
Even though quick commerce charges extra for convenience, today’s consumers, especially Millennials and Gen Z, are willing to pay for the added comfort. This shift has drastically affected DMart’s business model.
Online Competition
DMart launched its online platform, DMart Ready, but it has struggled to compete with giants like JioMart and Amazon. Limited product availability and lesser focus from management have hindered its success.
The Retail Landscape in India
Market Dynamics
India’s retail market is worth ₹78 trillion, with most of it dominated by unorganized players. Over time, the share of organized retail and online commerce is growing:
- Unorganized sector: Down from 86% (2018) to 81%
- Organized physical stores: 12.7%
- Online commerce: 6%
Quick commerce is still a small fraction (0.3%), but analysts predict it will grow to over 4% by 2028. This trend threatens traditional retailers like DMart.
What is DMart Doing to Stay Relevant?
Strategic Changes
DMart is taking several steps to regain its footing:
- Improving Margins: Targeting gross margins of 15.5% (up from the current 14%).
- Homegrown Brands: Focusing on private labels to improve profitability.
- Operational Efficiency: Streamlining store operations and improving customer tracking.
The Road Ahead
Despite these efforts, DMart’s management acknowledges that pre-pandemic performance levels (27–28% margins) are still out of reach. This reflects the significant challenges the company faces in adapting to new consumer habits.
Final Thoughts: Should You Invest in DMart?
DMart’s story teaches us an important lesson: investing should be based on logic, not emotions. While RK Damani’s legacy inspires trust, investors must critically analyze numbers and trends before making decisions.
DMart still has potential, but the near-term outlook remains challenging. For now, the question of why DMart is falling has a complex answer rooted in shifting consumer behaviors, rising competition, and internal inefficiencies.
Invest wisely and remember, the stock market rewards patience and informed decisions!
