Avenue Supermarts (DMART IN) – Q3FY26 Result Update – Tepid store metrics, Rich valuations limit upside – HOLD

We raise our FY26/FY27/FY28 EPS estimates by 4.6%/3.5%/3.3% as 3Q26 profits beat estimates led by higher gross margins and benefits of cost control. D’Mart’s Q3FY26 results beat our estimates at the EBITDA/PAT level by 9.2%/10.2%, led by lower overheads and healthy gross margins, despite 11bps YoY increase in cost of retailing and 36bps QoQ decline in GM&A contribution. Operating parameters continue to remain weak with sales/store down 1.1%, sales/ft down 0.3%, bills cuts/store/day decline of 2.1% YoY (flat in last 2 years) and flattish average bill value YoY. Interest burden also increased from Rs505mn to Rs1011bn in 9mFY26, in line with our expectations, which makes D’Mart an ideal candidate for equity dilution. The company added 10 stores in Q3FY26; we expect store additions to accelerate in Q4, with total openings of 57/65/70 in FY26/FY27/FY28. For Q4FY26, we forecast GM/EBITDA margins of 14.2%/7.1% on a low base, translating into healthy double-digit PAT growth. However, intensifying competition from quick commerce across FMCG/non-FMCG, deteriorating mix and volatile store economics raise concerns over the long-term sustainability of these margins. We estimate 12.5% EPS CAGR over FY26–28 and arrive at DCF based TP of Rs3783 (Rs3736 earlier, roll over to FY28) Given rich valuations at 65.5x FY28E EPS, we maintain HOLD, with back ended returns.