Avenue Supermarts sees healthy LFL growth but weaker new-store productivity

Investment View and Rating

Elara Securities' October 11, 2026 result update on Avenue Supermarts, which operates DMart, retains an Accumulate rating while lowering its target price to Rs 4,200 from Rs 4,700.

The broker sees a long-term store-expansion opportunity and believes DMart can coexist with quick commerce. However, it considers much of the prospective benefit from stronger store additions to be priced into the share price. Key concerns are pressure on like-for-like growth in metro markets, persistently weak throughput at new stores and operating deleverage that could constrain earnings delivery.

Q2 FY27 Operating Performance

Avenue Supermarts reported Q2 FY27 sales growth of 18.4 per cent year on year, supported by 9.5 per cent like-for-like growth. Overall bill cuts rose 14.4 per cent year on year and revenue per bill cut increased 3.5 per cent, implying transaction growth of about 6 per cent according to Elara. The broker believes FMCG price increases supported basket-value expansion.

In Q2 FY27, DMart had 518 stores, up 19.9 per cent year on year, with retail area of 21.4 million square feet. Revenue per store declined 0.7 per cent year on year to Rs 376 million and revenue per square foot declined 0.1 per cent to Rs 9,124. Bill cuts per store fell 4.6 per cent to 0.21 million, highlighting weaker productivity at newer stores.

Store Expansion and Revenue Outlook

Store additions were in line with Elara's expectations. Avenue Supermarts added 18 stores in H1 FY27 and had reached 20 per cent of Elara's FY27E estimate of 90 additions. Elara expects historically back-ended expansion to support healthy H2 FY27 additions and stronger revenue growth.

The broker forecasts FY27E revenue growth of 18.4 per cent, driven by accelerating store additions and sustained like-for-like momentum. Festival-season demand, FMCG inflation and a further round of FMCG price increases could support like-for-like growth.

Foods, FMCG and general merchandise and apparel grew 18.2 per cent, 17.4 per cent and 19.8 per cent year on year, respectively, in H1 FY27.

Margins and Earnings

Margins and earnings were the weaker elements of the quarter. Q2 FY27 gross margin was stable year on year at 14.1 per cent, which Elara views as evidence that pricing pressure from quick commerce has moderated.

However, EBITDA margin declined 28 basis points year on year to 7.3 per cent, below Elara's estimate, because of higher employee expenses and other operating costs. The broker believes the cost pressure may partly reflect operating deleverage caused by weaker new-store productivity.

PAT grew 7.6 per cent year on year, lagging sales growth because of higher depreciation and interest expenses.

Estimates and Earnings Forecasts

Elara has left FY27E revenue broadly unchanged but reduced FY28E and FY29E revenue estimates by 1.1 per cent and 2.2 per cent, respectively. It cut EBITDA estimates by 1.9 per cent and 2.3 per cent, and PAT estimates by 3.7 per cent and 4.4 per cent, respectively, to reflect operating deleverage, higher debt and increased interest costs.

The broker now forecasts FY27E to FY29E EPS CAGR of 16 per cent, reduced from 18 per cent. Its financial forecasts are as follows:

Valuation and Target Price

The Rs 4,200 target price is based on a reduced target P/E multiple of 62 times June 2028E EPS of Rs 67.5, versus the earlier 66 times multiple. At the CMP of Rs 3,517 as on October 9, 2026, the target implied 19.4 per cent upside.

Catalysts and Risks

Upside catalysts: Better-than-expected margin recovery and robust store expansion.

Principal downside risks: Continued operating deleverage, weak new-store throughput and pressure on metro like-for-like growth.