Avenue Supermarts sales growth and store additions improve as margin pressures persist
Avenue Supermarts Ltd.
HOLD
₹3,517
₹3,368.4
₹3,700
5.20%
Investment View and Valuation
ICICI Securities' October 11, 2026 results update maintains a HOLD rating on Avenue Supermarts, which operates DMART, while reducing the DCF-based target price to Rs 3,700 from Rs 4,200.
The broker considers the risk-reward balanced. Revenue growth and store additions have improved, but gross-margin pressure, wage inflation, higher finance costs, weaker efficiency metrics and competition from quick-commerce limit near-term upside at current valuations.
Q2FY27 Operating and Financial Performance
Standalone revenue grew 18.4 per cent year-on-year to about Rs 19,200 crore in Q2FY27, recovering from roughly 15 per cent growth in Q1FY27. Like-for-like growth improved to 9.5 per cent from 6.8 per cent in Q2FY26 and 5.5 per cent in Q1FY27.
Sales productivity increased 0.6 per cent year-on-year to Rs 8,741 per sq ft, indicating that growth was supported by both better operating efficiency and retail-area additions. ICICI Securities notes that the EDLC-EDLP model remains a core strength, supporting value-led footfalls and DMART's position in staples.
| Metric | Q2FY27 | Year-on-year / sequential movement |
|---|---|---|
| Revenue | About Rs 19,200 crore | Up 18.4% year-on-year |
| Like-for-like growth | 9.5% | 6.8% in Q2FY26; 5.5% in Q1FY27 |
| Sales productivity | Rs 8,741 per sq ft | Up 0.6% year-on-year |
| EBITDA margin | 7.3% | Down 28 bps year-on-year and 102 bps sequentially |
| Gross margin | 14.1% | Down 10 bps year-on-year |
| PBT | Rs 1,080 crore | Up 7.7% year-on-year |
| Reported PAT | About Rs 800 crore | Up 7.6% year-on-year |
Profit growth lagged sales growth. EBITDA margin was broadly in line with ICICI Securities' expectation. Gross margin declined to 14.1 per cent, while staff costs rose about 20 per cent year-on-year to 2.1 per cent of sales. Other operating expenses increased about 23 per cent to 4.8 per cent of sales. Management attributed the higher expenses to entry-level wage inflation.
Finance costs increased 87 per cent year-on-year to Rs 59.6 crore following recent debt issuances. Consequently, Q2FY27 PBT rose 7.7 per cent year-on-year to Rs 1,080 crore and reported PAT increased 7.6 per cent to about Rs 800 crore.
Product Mix and Competitive Environment
The product mix remained broadly stable in H1FY27. General Merchandise and Apparel contributed about 23.6 per cent of sales, compared with 23.3 per cent in H1FY26. Food contributed 56.9 per cent versus 57.0 per cent, while non-food accounted for 19.5 per cent versus 19.7 per cent.
| Category | H1FY27 | H1FY26 |
|---|---|---|
| General Merchandise and Apparel | 23.6% | 23.3% |
| Food | 56.9% | 57.0% |
| Non-food | 19.5% | 19.7% |
ICICI Securities sees heightened competition from quick-commerce players and Amazon's increased aggression as risks to footfalls and planned purchases. These risks are particularly relevant as dark-store networks deepen in metro and tier-1 cities and delivery offerings expand beyond groceries.
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Store Expansion and DMART Ready
Store expansion remained healthy. DMART added 15 stores in Q2FY27 versus three in Q1FY27, taking H1FY27 additions to 18 and the network to 518 stores, including one Navi Mumbai store under reconstruction.
Total retail business area reached 21.4 million sq ft, compared with 17.9 million sq ft in Q2FY26.
DMART Ready is prioritising operating efficiency and customer experience in its existing 11 core markets instead of geographical expansion. The broker believes this focus limits near-term margin expansion and operational upside for the online business.
Balance Sheet and Efficiency Metrics
Balance-sheet flexibility remains strong, although efficiency moderated. Debt increased to about Rs 4,100 crore in H1FY27 from Rs 1,480 crore in H1FY26 and Rs 2,270 crore in FY26, taking debt-to-equity to 0.15 times.
| Metric | H1FY27 | Comparison |
|---|---|---|
| Debt | About Rs 4,100 crore | Rs 1,480 crore in H1FY26; Rs 2,270 crore in FY26 |
| Debt-to-equity | 0.15 times | — |
| Inventory days | 36 | 34 previously |
| Inventory turnover | 5.9 times | 6.3 times previously |
| RoCE | 8.1% | 8.8% previously |
| RoE | 6.6% | 6.8% previously |
| Operating cash flow | About Rs 2,300 crore | About Rs 2,000 crore a year earlier |
ICICI Securities believes the additional debt provides flexibility for retail expansion and supply-chain infrastructure.
Estimates and Forecasts
ICICI Securities broadly maintains its FY27E and FY28E estimates. It forecasts FY26-FY28 revenue, EBITDA and PAT CAGRs of 17 per cent, 18 per cent and 19 per cent, respectively.
| Fiscal year | Revenue | EBITDA | PAT |
|---|---|---|---|
| FY27E | Rs 78,139 crore | Rs 6,135 crore | Rs 3,774 crore |
| FY28E | Rs 91,142 crore | Rs 7,281 crore | Rs 4,556 crore |
At the Rs 3,700 target price, DMART would trade at an implied price-to-earnings multiple of about 48 times September 2028E EPS.
Upside and Downside Risks
- Upside risks: An accelerated recovery in high-margin General Merchandise and Apparel demand, and easing competitive intensity in quick-commerce and e-commerce.
- Downside risks: Continuing market-share loss in metro and tier-1 markets to quick-commerce, and slower store additions.
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.
