Avenue Supermarts faces quick commerce pressure on margins and store productivity

Investment View and Rating Change

Prabhudas Lilladher’s October 11, 2026 report highlights that intensifying quick commerce competition is likely to cap Avenue Supermarts’ growth and margins. The broker downgraded the stock from Hold to Reduce and lowered its target price to Rs 3,214 from Rs 4,027.

Prabhudas Lilladher cut its FY27E, FY28E and FY29E estimates by 4.4 per cent, 3.2 per cent and 4.4 per cent, respectively. The revisions reflect intensified competition from quick commerce players, limited ability to pass commodity inflation on to consumers and persistently muted store operating metrics.

Q2 FY27 Financial Performance

Avenue Supermarts’ Q2 FY27 performance missed Prabhudas Lilladher’s expectations at the profit level. Consolidated revenue was broadly in line with the broker’s estimate, while EBITDA and adjusted PAT were below expectations.

Lower gross margin, higher interest cost and lower other income hurt profitability. Gross margin declined 15 basis points year-on-year to 14.9 per cent, against Prabhudas Lilladher’s expectation of 15.4 per cent. The broker believes D’Mart was unable to fully pass commodity inflation on to customers because of heightened competitive intensity. Cost of retail increased 4 basis points year-on-year to 7.8 per cent.

Store Productivity and Quick Commerce Pressure

Like-for-like growth improved to 9.5 per cent in Q2 FY27 from 5.5 per cent in Q1 FY27, supported by product inflation and some pantry loading before potential price increases. However, store productivity remained a concern: sales per store and sales per square foot declined 0.7 per cent and 0.1 per cent year-on-year, respectively.

Bill cuts grew 14.4 per cent year-on-year, aided by 76 store additions over the preceding three quarters. However, bills per store per day fell 4.1 per cent as the contribution of newer clusters increased.

Prabhudas Lilladher expects around 75 store additions annually through FY27E, FY28E and FY29E. D’Mart Ready remains confined to 11 cities, and the broker sees no new playbook for Avenue Supermarts to counter, or participate meaningfully in, the rapid consumer shift to quick commerce.

Financial Forecasts

EPS is estimated to grow at a 13.2 per cent CAGR over FY26 to FY29.

Key Risks and Return Ratios

• Sustained quick commerce competition.
• Continued inability to pass through commodity inflation.
• Weak store throughput.
• Limited progress at D’Mart Ready.

The broker also flags deterioration in ROE, from 16.5 per cent in FY23 to 12.8 per cent currently.

Valuation Approach and Target Price

Prabhudas Lilladner changed its valuation approach from DCF to 52 times September 2028 EPS to derive the target price of Rs 3,214. The Reduce rating reflects what the broker considers rich valuations of 61 times FY28E EPS and 53.3 times FY29E EPS, despite slower margin progression, competitive pressure and weaker return ratios.