Avenue Supermarts Ltd. shares surged to a one-month high in early Monday trading following the release of strong December quarter earnings that exceeded market expectations. The retail giant, which operates the popular DMart chain, delivered robust financial performance across key metrics, driving investor optimism despite some underlying concerns about growth momentum.

Strong Financial Performance Drives Results

The company's December quarter results showcased solid growth across major financial parameters:

*Calculated based on growth percentage provided

The earnings before interest, taxes, depreciation and amortisation performance was particularly noteworthy, with the 20.20% increase reflecting improved operational efficiency. The margin expansion from 7.60% to 8.10% represented a significant improvement in profitability metrics.

Operational Metrics Show Mixed Signals

While financial performance remained strong, certain operational indicators revealed challenges in the competitive retail environment. Like-for-like sales growth decelerated to 5.60% compared to 8.30% in the year-ago period, marking the slowest growth rate in five quarters. Additionally, the company reported the highest total bill cuts in five quarters, suggesting increased promotional activity to maintain customer traffic.

Analyst Perspectives on Margin Sustainability

Despite the strong earnings beat, leading investment firms expressed caution about the sustainability of margin improvements. Goldman Sachs identified the margin spike as largely one-off, attributing the expansion to trade discounts from FMCG companies clearing pre-GST channel inventory. The firm indicated it does not view the gross margin expansion as sustainable going forward.

Jefferies reinforced this perspective, noting that margins rather than growth were the primary driver of the earnings beat. This analysis suggests that while current results were impressive, the underlying business momentum may face headwinds.

Market Performance and Trading Activity

The positive earnings response was immediately reflected in the stock's market performance:

The stock's outperformance was notable given the broader market weakness, with the NSE Nifty 50 Index declining 0.49% during the same period.

Analyst Recommendations and Price Targets

The investment community remains divided on the stock's prospects, with analyst recommendations spread across the spectrum. Out of 29 analysts tracking Avenue Supermarts, 10 maintain buy ratings, 11 recommend hold positions, and eight suggest sell ratings. The average 12-month consensus price target implies an upside potential of 6.40%, reflecting cautious optimism about the company's medium-term prospects despite near-term operational challenges.

Avenue Supermarts DMart has received a 'Hold' rating from brokerage firm Systematix following its Q3 FY26 performance, which demonstrated better-than-expected margins despite facing some revenue growth challenges during the quarter.

Revenue Performance Across Segments

The retail chain reported mixed revenue performance during Q3 FY26, with growth partially impacted by deflation in staples. Despite this headwind, the company maintained steady growth across its key business segments.

Margin Expansion Through Product Mix

The company's margin performance exceeded expectations during the quarter, with the expansion primarily attributed to an improved product mix. This indicates effective category management and strategic positioning across different product segments, helping offset some of the revenue growth pressures from staples deflation.

Analyst Outlook

Systematix's 'Hold' rating reflects a balanced view of DMart's current performance, acknowledging both the positive margin trends and the revenue growth challenges. The brokerage's assessment takes into account the company's ability to maintain margin expansion despite external market pressures, particularly in the staples category where deflation has impacted overall revenue growth momentum.