Avenue Supermarts faces quick-commerce, margin and return pressure despite store expansion

Investment View and Key Concerns

In its July 28, 2026 analyst-meet update on Avenue Supermarts, PL Research retained its HOLD rating and reduced its target price to Rs 4,000 from Rs 4,103.

PL Research's cautious stance reflects sustained competitive intensity from quick-commerce players in metro markets, limited scope for margin expansion amid wage inflation and an adverse sales mix, a narrowing pricing moat versus quick commerce, and no clear profitability roadmap for D'Mart Ready. The broker believes that the scale-up of quick commerce and changing consumer preferences pose a material risk to D'Mart's growth, while D'Mart Ready, the group's e-commerce business, has lost momentum over the past few years.

Store Expansion and Management Outlook

Management reiterated its long-term objective of adding stores equivalent to about 15% of the existing base annually, although actual additions can vary with land acquisition, approvals and construction timelines. Management said the store pipeline remains healthy and expressed confidence in sustaining this expansion over the medium term.

Avenue Supermarts is increasingly willing to use long-term leases in markets where land acquisition is difficult. Of the 85 stores opened in FY26, 15 were leased, taking the total leased-store count to 68. Management characterised leasing as supplementary to, rather than a change in, its long-term ownership philosophy. It also remains flexible on store size, including smaller formats where viable. Management guidance includes gross margin of 14–15%, PAT margin of 5% and mid-to-high single-digit same-store sales growth.

Q1FY27 Financial Performance

D'Mart added three stores during the quarter, taking its store count to 503, following 85 additions in FY26.

Sales Mix and Other Business Performance

PL Research notes a less favourable sales mix. Food's share fell to 54.9% in Q1FY27 from 55.6% in Q1FY26, while general merchandise and apparel increased to 25.5% from 25.5%.

Avenue E-Commerce reported a FY26 PBT loss of Rs 307 crore, widening from Rs 247 crore in FY25. Align Retail Traders' PBT rose 24% to Rs 62 crore.

Earnings Estimates and Operating Forecasts

PL Research expects FY27E and FY28E sales of Rs 81,302 crore and Rs 96,197 crore, respectively, and has raised its sales estimates by 1.4% for both years. EBITDA estimates were raised by 2.6% for FY27E and 4.9% for FY28E, while EPS estimates were raised by 3.6% and 6.8%, respectively.

The broker forecasts 15–16% bill-cut growth, about 2% average bill-value growth and roughly 20 basis points of EBITDA-margin contraction over FY26–FY28, resulting in a 14.4% EPS CAGR. Sales per square foot are expected to rise at about 1.6% CAGR over FY26–FY28.

Margins, Capital Intensity and Return Ratios

PL Research expects FY28E EBITDA margin to decline to 7.3% and sees return ratios remaining under pressure. Capex rose to Rs 4,100 crore in FY26 from Rs 1,300 crore in FY20 and is expected to increase to about Rs 4,300 crore by FY29.

The broker expects incremental capex to exceed internal cash generation, limiting return-on-equity improvement after ROE declined to about 13% in FY26 from about 16% in FY23. Although EBITDA growth is expected to return to double digits from Q2FY27 on a favourable base, PL Research believes accelerating capex, structurally lower ROE and a valuation of about 65 times FY28E EPS limit the scope for a medium-term re-rating.