Avenue Supermarts sees LFL recovery, but margin pressure and FCF outflow persist
Avenue Supermarts Ltd.
Neutral
₹3,520
₹3,362
₹3,925
11.51%
Investment View and Recommendation
Motilal Oswal Financial Services maintained its Neutral rating on Avenue Supermarts on October 11, 2026, following 2QFY27 results that showed a recovery in revenue growth and like-for-like growth, but weaker profitability and free cash flow. The broker reduced its FY27E and FY28E EBITDA and PAT estimates by 1% to 3%.
Motilal Oswal believes that faster store additions and sustained mid-to-high single-digit like-for-like growth are the key growth levers. However, it sees limited near-term catalysts for the stock to outperform.
Revenue Growth and Store Expansion
Avenue Supermarts' standalone revenue increased approximately 18% year on year to Rs 19,206 crore in 2QFY27. Growth was supported by approximately 20% area growth and a recovery in like-for-like growth to 9.5%, compared with 5.5% in 1QFY27 and 6.8% a year earlier.
The company added 15 stores and 0.7 million square feet during the quarter, taking its network to 518 stores and 21.4 million square feet. Newly added stores averaged 46,667 square feet, above the existing average store size of 41,313 square feet.
| Standalone operating metric | 2QFY27 | Comparison |
|---|---|---|
| Revenue | Rs 19,206 crore | Up approximately 18% year on year |
| Like-for-like growth | 9.5% | 5.5% in 1QFY27; 6.8% a year earlier |
| Stores | 518 | 15 stores added during the quarter |
| Total area | 21.4 million square feet | 0.7 million square feet added during the quarter |
| Annualised revenue per store | Rs 150.5 crore | Down approximately 1% year on year |
| Annualised revenue per square foot | Rs 36,583 | Broadly flat year on year |
Standalone Profitability
Profitability was below Motilal Oswal's expectations. Standalone gross profit rose approximately 18% year on year to Rs 2,717 crore, but gross margin declined 10 basis points to 14.1%, around 20 basis points below the broker's estimate.
The margin pressure reflected a less favourable category mix. The contribution of higher-margin General Merchandise and Apparel declined to 21.9%, while Foods contribution increased to 58.8%.
Standalone EBITDA rose approximately 14% to Rs 1,403 crore, but EBITDA margin declined approximately 30 basis points to 7.3%. EBITDA was 3% below the broker's estimate. Employee cost increased approximately 20% because of strong store openings, while other expenses rose approximately 22.5%, likely reflecting higher minimum wages for contract labour.
Standalone PAT increased approximately 8% to Rs 804 crore, which was 7% below the estimate. The shortfall reflected an 87% increase in finance cost and a 29% decline in other income.
| Standalone metric | 2QFY27 | Year-on-year change / observation |
|---|---|---|
| Gross profit | Rs 2,717 crore | Up approximately 18% |
| Gross margin | 14.1% | Down 10 basis points; approximately 20 basis points below estimate |
| EBITDA | Rs 1,403 crore | Up approximately 14%; 3% below estimate |
| EBITDA margin | 7.3% | Down approximately 30 basis points |
| PAT | Rs 804 crore | Up approximately 8%; 7% below estimate |
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Consolidated Performance and Customer Trends
Consolidated revenue grew 18% year on year to Rs 19,644 crore in 2QFY27, while EBITDA increased approximately 15% to Rs 1,393 crore. Consolidated EBITDA margin declined approximately 20 basis points to 7.1%, and PAT increased 8% to Rs 740 crore.
Subsidiary operating losses moderated to 2.3%, compared with 3.6% a year earlier and 6.1% sequentially. Foods growth recovered to approximately 19%, General Merchandise and Apparel growth was approximately 18%, and non-food FMCG growth was approximately 17%.
Bill cuts increased approximately 14% to 111 million, while average basket value rose approximately 3.5% to Rs 1,730. DMART Ready continued to focus on operational efficiency and customer experience after rationalising its city presence to 11 cities in FY26 from 25 in FY25.
Cash Flow and Balance Sheet
Cash generation weakened in 1HFY27. Standalone free cash flow outflow widened to Rs 1,660 crore from Rs 400 crore a year earlier, as working-capital build-up increased to Rs 1,900 crore from Rs 700 crore and capex increased 23%.
Net debt excluding lease liabilities rose to Rs 2,500 crore from Rs 700 crore at March 2026.
Growth Outlook and Key Risks
The broker estimates a 16% to 17% CAGR in consolidated revenue, EBITDA and PAT over FY26 to FY29E. The estimates are driven by approximately 15% CAGR in area additions and mid-single-digit like-for-like growth.
Key risks to the outlook include continuing quick-commerce pressure in dense metro catchments, persistent discounting and customer-acquisition intensity. These factors could weigh on both growth and margins.
Valuation and Target Price
Motilal Oswal reduced its target price to Rs 3,925 from Rs 4,000. The target is based on a 35 times December 2028 pre-Ind AS 116 EV-to-EBITDA multiple applied to estimated EBITDA of Rs 7,350 crore, implying approximately 57 times December 2028 P/E.
After deducting net debt, the valuation produces an equity value of Rs 3,925 per share, representing 11.5% upside to the report CMP of Rs 3,520.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
