Avenue Supermarts, the parent company of retail chain DMart, delivered strong third-quarter results with consolidated profit after tax growing 18.3% year-on-year to ₹855.92 crore. The company's shares surged as much as 2.7% in early trade, reaching a day's high of ₹3,906.95 on the BSE following the earnings announcement.

Financial Performance Highlights

The company's financial metrics showed consistent improvement across key parameters during the third quarter:

The company's profitability improved significantly, with PAT margins expanding to 4.7% from 4.5% in the previous year. EBITDA margins also strengthened to 8.1%, compared to 7.6% in the same period last year, supported by strong cost control measures.

Store Expansion and Operational Updates

DMart continued its expansion strategy by adding 10 new stores during the quarter, bringing the total store count to 422. However, the company faced challenges with rising lease and depreciation costs due to a higher focus on rental properties. Same-store sales growth stood at 5.6%, while revenue per square foot remained flat during the period.

Gross margins expanded to 14.6%, representing a 50 basis points year-over-year improvement. This expansion was supported by reduced promotional intensity in FMCG products and GST cuts. Despite wage inflation and skilled workforce supply mismatches creating cost pressures, the company managed to achieve strong EBITDA growth through effective cost management.

E-commerce Vertical Performance

DMart Ready, the company's e-commerce vertical, experienced a deceleration in growth momentum. The platform's growth slowed to 20% from 25% in the previous year's third quarter. Additionally, DMart Ready reduced its operational presence from 25 cities to 19 cities year-over-year, reflecting a more cautious approach to scaling e-commerce operations.

Analyst Recommendations

Brokerage firms have provided mixed recommendations following the quarterly results:

Nuvama maintained its 'Hold' rating while reducing the target price, citing concerns over slowing top-line growth and widening losses at subsidiaries. Motilal Oswal reiterated its 'Buy' rating with an increased target price, emphasizing DMart's value-focused model and superior store economics. JM Financial maintained a 'Reduce' rating with a lowered target price, adjusting estimates based on slower store opening ramp-up and revised same-store sales growth projections.

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.