DMart Shares Slip Post Q2 Results — Should You Buy, Sell, or Hold Avenue Supermarts?

Mumbai | October 13

Avenue Supermarts delivered a consolidated revenue growth of ~15.5% YoY to ₹166.8 billion, buoyed by festive stocking and sustained FMCG demand. But operating metrics failed to keep pace: EBITDA margins shrank to 7.3% (down ~29 bps YoY), as costs—especially employee and overhead—intensified. Net profit rose just 3.8% YoY to ₹6.9 billion, lagging analyst expectations.

“The push from e‑commerce and quick commerce, along with elevated manpower and fixed costs, is pinching margins,” said Amnish Aggarwal, Head of Research, PL Capital. “At current valuations, there’s limited comfort on the downside, but upside remains contingent on structural improvement.”

Same‑Store Growth Improves, But Headwinds Remain

One silver lining: like‑for‑like (LFL) growth clocked in at 6.8%, up from 5.5% in the prior year. This suggests pockets of consumer revival, especially amid easing inflation and recent GST rationalisation, where essential goods now attract a 5% tax slab.

But even that improved growth wasn’t enough to sway sentiment. The market is bearish on whether this rebound is sustainable, especially with mounting pressure from quick commerce players and rising input inflation.

PL Capital’s Assessment: Cautious but Steady

PL Capital trimmed its FY27/FY28 EPS forecasts by ~3.3%/3.2%, while projecting a 14.5% EPS CAGR over FY26–28. The firm reaffirmed its ‘Hold’ call, placing the target price at ₹4,111, citing that much of the positive narrative—festive uptick, supply chain efficiencies—is already reflected in the stock.

“Avenue Supermarts remains one of the best‑in‑class names in organized retail,” observed Vishwa Solanki, Analyst, PL Capital, “but until we see durable margin expansion and consistent store productivity improvements, entering at this level carries risk.”

Expansion, Mix & Online Reset

During the quarter, DMart added 8 new stores (total now 432 units, ~17.9 million sq ft). Interestingly, it pulled back from five underperforming cities in its online arm D’Mart Ready (e.g. Amritsar, Chandigarh) to sharpen focus on core markets and logistics efficiency.

On the product mix front, General Merchandise & Apparel (GM&A) contributed 23.3% to sales in 1H FY26, up from 22.6% a year ago, signaling a strategic push into higher-margin lines. Yet, groceries still dominate, capping margin expansion.

Buy, Sell or Hold? The Verdict

Hold: That’s PL Capital’s standing — hold your existing positions, but avoid fresh large exposures unless key triggers materialise: margin stabilization, stronger same-store performance, and valuation in sync with earnings growth.

The long-term narrative of scale, deep supply chain leverage, and brand strength remains intact. Yet, the rich valuation (~74× FY28E) leaves little room for missteps in a tight margin environment.

Quick Snapshot – Q2FY26 vs Q2FY25

Bottom Line

DMart’s Q2 shows that while consumption is stirring, margin headwinds and competitive pressures still loom large. Unless the company demonstrates sustained improvement in store economics, investors would be wise to sit tight — ‘Hold’ remains the prudent posture until the story progresses further. The brokerage has revised its FY27/FY28 earnings estimates lower by around 3% and now projects a 14–15% CAGR in profits over FY26–28. While store expansion and easing inflation could lift earnings in the second half, the stock’s lofty valuation of nearly 74x FY28E EPS leaves limited room for near-term re-rating.

PL Capital has therefore maintained its ‘Hold’ rating with a target price of ₹4,111, advising investors to await clearer signs of margin stabilisation and stronger store productivity before considering fresh exposure.

Read the full report here