DMart faces rising QC threat as Kotak reiterates ‘Sell’ call with 20% downside
DMart share price in focus: Domestic brokerage firm Kotak Institutional Equities, 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 DMart’s physical store expansion—expecting its store count to grow from 415 currently to 620 by FY28E—it flagged intensifying pressure from QC players, who are rapidly expanding their geographic footprint across India.
Kotak believes this could 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, populous state, and the move potentially signals more store additions in the region. Kotak notes that while D-Mart was already present in Ghaziabad, it had not meaningfully expanded beyond that city until now.
The brokerage considers the UP expansion to be in line with expectations, referencing DMart’s July 2024 analyst call, where Uttar Pradesh and Orissa were identified as key growth markets. However, QC players have already 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 cities.
The brokerage further highlights that over 100 cities now have at least one QC player but no DMart store—underscoring the aggressive push of QC players into Tier 2 and Tier 3 markets. Additionally, 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 pressures, 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 flours, the retailer is now actively expanding into branded categories like biscuits, candies, and 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 resemble their branded counterparts in packaging and appearance.
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 cautioned that the ramp-up in private labels may only partially offset the impact of QC-led footfall erosion and rising cost pressures.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
