Avenue Supermarts Ltd., the parent company of DMart, reported a strong December quarter earnings performance driven primarily by significant margin improvements, though brokerages remain cautious about the sustainability of these gains amid ongoing competitive pressures in the retail sector.

Strong Margin Performance Powers Earnings Beat

The company's quarterly performance was characterized by substantial margin expansion that surprised analysts. Key financial highlights include:

Goldman Sachs highlighted that this margin expansion represented the strongest performance in recent quarters, driving profit before tax growth that far exceeded the company's recent track record. The 18% annual PBT growth marked a significant improvement from the modest 2% average growth witnessed over the preceding five quarters.

Sustainability Concerns Over Margin Gains

Despite the impressive margin performance, brokerages have expressed reservations about the durability of these improvements. Goldman Sachs attributed the margin spike largely to one-off factors, particularly trade discounts from FMCG companies that were clearing pre-GST channel inventory. This analysis suggests that the gross margin expansion may not be sustainable in future quarters.

The brokerage maintained its cautious stance, keeping sales growth assumptions unchanged at 17% for both FY27 and FY28, while retaining a 'sell' rating due to sustained competitive intensity in the retail sector.

Operational Metrics and Store Expansion

The company's operational performance showed mixed signals across different metrics:

Jefferies noted that operating costs provided some relief, with operating expense per store growth moderating over the past three quarters. This improvement came after a period of double-digit growth rates as DMart invested in store upgrades.

Leadership Transition and Future Outlook

The company announced a significant management transition that will reshape its leadership structure. Ignatius Navil Noronha will step down as MD & CEO on January 31, 2026, with Anshul Asawa set to assume the CEO role from February 1, 2026, and the MD position from April 1, 2026.

Regarding regulatory changes, management indicated that the impact of labour codes effective November 21, 2025, on the company's own employees is not expected to be material, though evaluation continues for contract labour arrangements.

Analyst Revisions and Market Outlook

Based on the quarterly performance, Goldman Sachs made selective adjustments to its financial projections. The brokerage raised FY26 EPS estimates by 6% due to the margin spike and increased FY27-28 EPS projections by 2% on expectations of slightly lower store operating expenses. However, the firm maintained its overall cautious stance, keeping sales growth assumptions unchanged and retaining its 'sell' rating.

Jefferies echoed similar sentiments, emphasizing that margins rather than growth drove the earnings beat, while maintaining a 'hold' rating on the stock. Both brokerages highlighted the ongoing competitive intensity in the retail sector as a key concern for the company's future performance.

Nuvama has maintained a Hold rating on Avenue Supermart, setting a target price of ₹4,351.00 per share. The brokerage's recommendation indicates a cautious approach toward the retail chain's stock performance.

Analyst Recommendation Details

The Hold rating suggests that Nuvama views Avenue Supermart's current valuation as fairly priced, with limited immediate upside potential. This neutral stance reflects the brokerage's assessment of the company's market position within the competitive retail landscape.

Market Implications

The Hold recommendation indicates that investors may want to maintain their existing positions in Avenue Supermart without making significant new investments at current levels. Nuvama's target price of ₹4,351.00 provides a benchmark for evaluating the stock's performance against analyst expectations.

This rating reflects the brokerage's analysis of Avenue Supermart's business fundamentals and market conditions affecting the retail sector. The neutral stance suggests that while the company maintains its market position, growth catalysts may be limited in the immediate term.