Avenue Supermarts Ltd., which operates the popular DMart retail chain, reported robust financial performance for the December quarter, driving its stock price up 3% on the National Stock Exchange. The shares reached an intraday high of ₹3,918.60 before settling at ₹3,783, demonstrating investor confidence in the company's operational execution despite a challenging retail environment.

Strong Financial Performance Drives Growth

The company delivered impressive financial metrics for the quarter ended December 2024, showcasing strong operational efficiency across key parameters.

The standout performance came from margin expansion, with gross margins reaching 14.6%, representing a 50 basis points improvement year-on-year. This margin expansion was 46-50 basis points higher than consensus estimates, indicating better-than-expected operational efficiency. EBITDA margins also improved by 47 basis points year-on-year, contributing to the 20% EBITDA growth that outpaced revenue growth of 13.3%.

Mixed Brokerage Sentiment on Sustainability

Despite the strong headline numbers, brokerage firms presented divergent views on the sustainability of DMart's performance, reflecting concerns about competitive pressures and demand trends.

Bullish Outlook: CLSA maintained the most optimistic stance, reiterating its High Conviction Outperform rating and raising the target price to ₹6,185. The brokerage highlighted that gross profit growth of 17.2% exceeded sales growth, demonstrating improved operational leverage. CLSA raised its FY26-FY28 earnings estimates by 1-7% to reflect stronger profit growth expectations.

Motilal Oswal reiterated its buy rating, increasing the target price to ₹4,600 from ₹4,300, while HDFC Securities maintained an add rating with a ₹4,000 target price.

Cautious Perspectives: Citi maintained a sell rating with a ₹3,150 target price, citing underlying demand slowdown concerns. The brokerage noted that same-store growth moderated to 5.6% from 6.8% in the September quarter and 7.1% in the June quarter. Management indicated that deflation in staples had partially impacted revenue growth, with actual revenue growth coming in about 3% below Citi's estimates.

Operational Challenges and Market Dynamics

Several operational factors emerged as key considerations for DMart's future performance. The company's profit growth has lagged revenue growth in 10 of the last 12 quarters, reflecting ongoing competitive and cost pressures in the retail sector.

Jefferies maintained a neutral hold rating with a ₹4,050 target price, noting that while EBITDA margins expanded to multi-quarter highs, revenue growth moderation continued. The brokerage flagged the upcoming CEO transition as a key development to monitor.

Nuvama retained its hold rating with a ₹4,351 target price, attributing the margin improvement to reduced discounting following GST rate cuts. The firm noted that DMart Ready's growth revived sequentially to over 20% year-on-year, indicating strength in the company's online delivery segment.

Market Position and Future Outlook

The results highlight DMart's ability to maintain profitability growth despite a challenging retail environment marked by increased competition from quick-commerce players. The margin expansion suggests effective cost management and pricing strategies, though sustainability remains a key question given competitive pressures.

The company's focus on store expansion continues steadily, with management expecting limited impact from new labor codes. However, analysts noted that disclosures remain an area requiring attention, and the competitive landscape with quick-commerce players poses ongoing challenges to margin sustainability in the near term.

ICICI Securities has maintained its HOLD rating on Avenue Supermarts while revising the target price to ₹4,000 from the earlier target of ₹4,400. The brokerage's latest research report highlights the company's continued focus on operational stability rather than aggressive growth expansion.

Financial Performance Analysis

The company delivered a positive surprise on the margin front during Q3FY26, with EBITDA margin reaching 8.40% despite facing an unfavorable product mix. This margin improvement was attributed to strong execution discipline and effective cost control measures implemented by the management.

Growth Momentum and Operational Challenges

Despite margin improvements, Avenue Supermarts faces several operational headwinds that continue to cap its growth momentum. The like-for-like growth moderated to 5.60% in Q3FY26, showing a declining trend from approximately 8.30% in Q3FY25 and 6.80% in Q2FY26. Store productivity levels remain below pre-Covid benchmarks, indicating ongoing recovery challenges in the retail environment.

The company's staples-led product mix and calibrated expansion of DMart ReADY provide earnings visibility and downside protection. However, these factors also limit ticket size expansion and operating leverage potential amid rising competition and urban market fragmentation.

Revised Financial Projections

ICICI Securities has adjusted its financial estimates for Avenue Supermarts based on current market conditions and company performance:

Investment Outlook

The brokerage emphasizes that a meaningful re-rating of the stock would require sustained recovery in discretionary-led like-for-like growth and improved store-level productivity, rather than relying solely on margin support. The current business model suggests that earnings growth is likely to remain steady rather than experiencing sharp acceleration.

ICICI Securities maintains its HOLD recommendation with a DCF-based revised target price of ₹4,000, reflecting the company's stable but measured growth trajectory in the competitive retail landscape.