Avenue Supermarts Ltd delivered a notable operational performance in the December quarter, with margins taking center stage as the DMart operator reported its strongest EBITDA margin in multiple quarters. The company achieved significant margin expansion despite facing headwinds from intense competition and cost pressures.

Margin Performance Highlights Multi-Quarter Recovery

The company's standalone EBITDA margin reached 8.40% in Q3, representing a 47 basis points year-on-year improvement and marking a multi-quarter high. This performance is particularly significant as it represents the first annual increase in EBITDA margin following six consecutive quarters of decline.

The margin expansion was primarily attributed to the 50 basis points rise in gross margin to 14.50% and a slower rate of growth in other operating expenses. The company may have also benefited from reduced discounting following cuts in goods and services tax (GST) rates.

Revenue Growth Decelerates to Multi-Quarter Low

Despite the margin improvements, revenue growth emerged as a concern, moderating to 13% in Q3 - the slowest growth rate witnessed in at least the past ten quarters. Like-for-like growth, which measures performance of stores operational for at least 24 months, declined to 5.60% from 6.80% in Q2 and 8.30% in Q3 of the previous fiscal year.

Anshul Asawa, CEO-designate of the company, attributed the revenue impact partially to deflation in staples. Asawa is scheduled to be appointed CEO from February 1 and managing director from April 1.

Cost Pressures and Operational Metrics

Staff costs remained a significant expense item, jumping 32% year-on-year in Q3 to ₹350.00 crores. Management has previously indicated that elevated staff costs reflect investments in improving service levels across stores.

Sales Mix Remains Stable Across Categories

Avenue's sales composition showed stability during the nine-month period ended December, with the food category maintaining its dominance despite lower margins:

• Food Category: 57.19% of revenue share
• FMCG (Non-foods): 19.83% of revenue share
• General Merchandise & Apparel: 22.98% of revenue share

ICICI Securities analysts noted that the continued emphasis on low-margin foods limits structural margin expansion opportunities, suggesting that Q3 margin improvement appears execution and seasonality-driven rather than indicating a structural shift in product mix or pricing power.

Market Response and Future Outlook

Despite the margin improvements, investor response remained muted, with the stock rising just 0.80% on Monday following the earnings announcement. The company is currently evaluating the full impact of new labour codes effective November 21, though management expects the overall impact to be immaterial.

JM Financial Institutional Securities Ltd raised FY26 earnings per share estimates by 3% based on the strong Q3 operational performance, while FY27 estimates remained largely unchanged. However, FY28 estimates were reduced by 3% due to lower store opening projections and reduced like-for-like growth expectations.

Avenue Supermarts Limited, which operates the DMart supermarket chain, has reported strong financial results for Q3 FY26, demonstrating robust growth across key performance metrics. The company's consolidated revenue and net profit showed significant year-on-year improvements, while brokerages have presented varied outlooks on the stock's future prospects.

Financial Performance Highlights

The company's Q3 FY26 financial results showcase strong operational performance across multiple parameters:

The company has demonstrated consistent long-term growth with revenue and net profit growing at a compound annual growth rate of 19.00% and 15.78% respectively over the last five years. Avenue Supermarts maintains strong return ratios with ROCE at 18.00% and ROE at 13.40%, while maintaining a conservative debt-to-equity ratio of 0.07x.

Brokerage Recommendations and Target Prices

Analyst opinions on Avenue Supermarts vary significantly, reflecting different perspectives on the company's growth trajectory and valuation:

CLSA has reiterated its "High Conviction Outperform" rating and raised its target price to ₹6,185 per share, citing stronger profit growth and improved earnings visibility. The brokerage increased its FY26-FY28 earnings estimates by 1-7%, supported by operational efficiency, scale benefits, and steady store expansion. Conversely, Goldman Sachs maintains a sell rating with a ₹3,500 target price, flagging slowing like-for-like growth and viewing recent margin expansion as unsustainable.

Store Network and Expansion

As of September 2025, Avenue Supermarts operates 432 DMart stores across 19 cities in India. The company maintains its strongest presence in Maharashtra with 120 outlets, followed by Gujarat with 68 stores, and Telangana with 45 stores. The retail network extends across multiple states including Andhra Pradesh, Karnataka, Tamil Nadu, Madhya Pradesh, Rajasthan, NCR, Punjab, and Chhattisgarh.

Market Performance

Following the Q3 FY26 results announcement, Avenue Supermarts shares jumped 2.97% to reach an intraday high of ₹3,917.95 per equity share from the previous day's close of ₹3,805.10. The stock subsequently retreated and was trading at ₹3,767 per equity share. With a market capitalization of ₹2,45,131.15 crores, the company remains a significant player in India's retail sector, focusing on value retailing through everyday low prices on foods, FMCG products, non-foods, apparel, and general merchandise.