DMart Q3 Review - Lower Margin, Higher CoR Result In Earnings Miss; Motilal Oswal Retains 'Buy' On The Stock

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Motilal Oswal Report

Avenue Supermarts Ltd. posted weak results in Q3 FY25 as standalone Ebitda grew 10% YoY (4% miss) due to weaker gross margin and higher cost of retailing.

Management indicated that increased intensity in discounting in the FMCG category continued to impact the high turnover per sqft stores in metros. However, the impact was relatively lower versus Q2 FY25.

DMart’s like-for-like growth for over two-year-old stores rose to 8.3% in Q3 (versus ~5.5% in Q2), albeit below the ~10% LFL growth rate in FY24.

The company’s growth moderated in the non-food FMCG (~13% YoY) and general merchandise and apparel (~16% YoY) segments, with GM&A’s contribution declining ~30 bp YoY. We believe higher competitive intensity in FMCG and lower GM&A contribution could have led to moderation in gross margin (down ~20bp YoY).

DMart added 10 stores in Q3 FY25 (22 in nine months). Acceleration in store additions remains the biggest growth driver for DMart, and we expect the pace of store additions to pick up in Q4 (build in 40 store additions in FY25).

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