NewsEarningsPrabhudas Lilladher Maintains HOLD Rating on Avenue Supermarts with Target Price of ₹3,783Prabhudas Lilladher Maintains HOLD Rating on Avenue Supermarts with Target Price of ₹3,783
Prabhudas Lilladher maintains HOLD rating on Avenue Supermarts with revised target price of ₹3,783, up from ₹3,736. The brokerage raised FY26-28 EPS estimates by 3.3-4.6% after Q3FY26 results beat EBITDA and PAT estimates by 9.2% and 10.2% respectively. Despite strong financial performance driven by cost control and healthy margins, operational parameters remain weak with declining sales per store and bills cuts. Long-term concerns include intensifying quick commerce competition and rich valuations at 65.5x FY28E EPS, leading to maintained HOLD recommendation with back-ended return expectations.
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Prabhudas Lilladher has maintained its HOLD rating on Avenue Supermarts while raising the target price to ₹3,783 from the earlier target of ₹3,736. The brokerage has revised its earnings estimates upward following the company's better-than-expected Q3FY26 performance.
Earnings Estimates Revision
The research house has raised its EPS estimates across multiple fiscal years based on the strong quarterly results. The revision reflects improved profit expectations driven by better gross margins and effective cost control measures.
| Parameter | Revision |
|---|---|
| FY26 EPS Estimate | +4.6% |
| FY27 EPS Estimate | +3.5% |
| FY28 EPS Estimate | +3.3% |
Q3FY26 Performance Analysis
D'Mart's Q3FY26 results significantly outperformed analyst expectations, with strong performance across key profitability metrics. The company demonstrated effective cost management despite facing some operational headwinds.
| Metric | Beat Estimate By |
|---|---|
| EBITDA Level | 9.2% |
| PAT Level | 10.2% |
The strong performance was primarily attributed to lower overhead costs and healthy gross margins. However, the company experienced an 11 basis points year-over-year increase in cost of retailing and a 36 basis points quarter-over-quarter decline in GM&A contribution.
Operational Challenges
Despite the financial outperformance, several operational parameters showed weakness, indicating underlying business challenges:
- Sales per store declined by 1.1%
- Sales per square foot decreased by 0.3%
- Bills cuts per store per day fell by 2.1% year-over-year, remaining flat over the last two years
- Average bill value remained flattish year-over-year
Financial Position and Store Expansion
The company's interest burden increased significantly from ₹505.00 million to ₹1,011.00 billion in 9mFY26, aligning with analyst expectations. This development positions D'Mart as an ideal candidate for equity dilution according to the brokerage.
Regarding expansion plans, the company added 10 stores during Q3FY26. Prabhudas Lilladher expects store addition pace to accelerate in Q4, with projected total openings of 57 stores in FY26, 65 stores in FY27, and 70 stores in FY28.
Future Outlook and Concerns
For Q4FY26, the brokerage forecasts GM and EBITDA margins of 14.2% and 7.1% respectively on a low base, which should translate into healthy double-digit PAT growth.
However, several long-term concerns persist:
- Intensifying competition from quick commerce across FMCG and non-FMCG segments
- Deteriorating product mix
- Volatile store economics
These factors raise questions about the long-term sustainability of current margin levels. The brokerage estimates a 12.5% EPS CAGR over FY26-28 and has arrived at a DCF-based target price of ₹3,783.
Investment Recommendation
Despite the positive quarterly results and upward revision in estimates, Prabhudas Lilladher maintains its HOLD rating, citing rich valuations at 65.5x FY28E EPS. The brokerage expects back-ended returns for investors in the stock.
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