Avenue Supermarts Q4 Results Review: Margin Miss, Rising Costs Prompt Caution From Brokerages

Avenue Supermarts Ltd., operator of the DMart retail chain, reported a marginal decline in fourth-quarter profit, missing analysts' expectations. Brokerages flagged pressure from a weaker general merchandise and apparel mix, aggressive discounting, and rising operating expenses, all of which weighed on profitability despite healthy store additions.

The Radhakishan Damani-led retailer posted a 2.2% year-on-year decline in consolidated net profit to Rs 551 crore for the January-March period, as per its stock exchange filing on Saturday.

In a quarter marked by focus on expansion, DMart opened 28 new stores—the highest-ever addition in a single quarter—taking its total count to 415. For the full year, the company added 50 stores, up 22% from the previous year.

Brokerages noted the impact of higher competition in fast-moving consumer goods, inflationary wage pressures, and continued investments in service levels, which together dragged down margins. Gross margin mix from general merchandise and apparel declined by 50 basis points year-on-year, according to analysts.

The DMart Ready e-commerce vertical continued to see traction, marking its presence in 25 cities, up from 23 in the previous financial year. Management said home delivery in key metros is gaining share, although losses in the online segment are expected to persist for some time.

Separately, CEO Neville Noronha is set to gradually step back from day-to-day operations, with a formal handover to the CEO-designate expected in four to five months. Noronha will continue to focus on store expansion, DMart Ready, and long-term strategic areas.

Jefferies retained a 'hold' rating, but trimmed the target price from Rs 4,225 to Rs 4,100, citing a “margin shocker”. Standalone Ebitda margin fell 80 basis points to 6.8%, the lowest since the first quarter of fiscal 2022. The miss was driven by intensified competition in FMCG, higher wages, and investments in customer service. Ebitda was 6% below estimates, and earnings per share forecasts were cut by 4–7% for fiscals 2026 and 2027.

Analysts also noted that like-for-like revenue growth for mature stores moderated to 8.1% and highlighted an increase in per-store staff costs. The firm maintained its stance as margin risks continue despite aggressive store expansion.

Citi maintained a 'sell' call, lowering its target price from Rs 3,350 to Rs 3,250, citing a “double whammy” of competitive pressure and rising opex. Despite 8.1% same-store growth, Ebitda and adjusted profit missed estimates by 5% and 8%, respectively. The brokerage cut its earnings forecast by 9–12% and expects continued pressure on margins from quick commerce rivals and large-format competitors.

The brokerage also raised concerns about the company potentially turning net debt in the next two to three years, citing negative free cash flows in nine of the past 10 years. It warned that while store expansion may accelerate, profitability remains under threat.

Nuvama retained its 'hold' rating and raised its target price slightly to Rs 4,273 from Rs 4,212, rolling forward to fiscal 2027 estimates. It noted that while DMart maintained over 15% revenue growth in the fourth quarter, margin pressures from FMCG competition and rising costs remain headwinds.

On DMart Ready, Nuvama said management has highlighted strong growth in home delivery, which has compensated for the shutdown of several pick-up points. Losses in the online business are expected to continue, and the consolidated-standalone difference is likely driven by a higher mix of delivery-led sales.