Nuvama's Abneesh Roy sees DMart stabilising, prefers ITC to Trent
Nuvama's Abneesh Roy sees Avenue Supermarts nearing bottom after sharp correction, citing 50 basis points margin improvement in Q3FY26 and oversold conditions. DMart Ready growth tracks 20% with 28 stores added in nine months, expecting 60 stores full-year. Roy emphasises sustainability of margin recovery as critical, remains cautious on Trent but prefers ITC for attractive valuations and 5% dividend yield.
*this image is generated using AI for illustrative purposes only.
Avenue Supermarts may be nearing a bottom after a sharp correction, with margin improvements in the October-December quarter of 2025 (Q3FY26) pushing the retailer into oversold territory, according to Abneesh Roy, Executive Director at Nuvama Institutional Equities. The encouraging quarterly performance has set up the possibility of a near-term rebound despite ongoing concerns around foreign investor selling.
Q3FY26 Performance Shows Stabilisation Signs
Roy described the Q3FY26 numbers as encouraging, highlighting a roughly 50 basis point improvement in both gross and earnings before interest, taxes, depreciation and amortisation (EBITDA) margins. After a prolonged period of pressure on profitability, even this modest margin uptick has come as a positive surprise for the market.
| Performance Metric | Q3FY26 Status |
|---|---|
| Gross Margin Improvement | ~50 basis points |
| EBITDA Margin Improvement | ~50 basis points |
| DMart Ready Growth | Close to 20% |
| Stock Condition | Oversold zone |
"It's a good number. I think this stock is in the oversold zone," Roy stated, pointing to the margin recovery as a key positive indicator.
Operational Indicators Point to Recovery
Beyond margins, Roy highlighted that operational indicators were also stabilising. Growth in DMart Ready was tracking close to 20%, which he described as reasonable performance. Store expansion remained on course with Avenue Supermarts adding around 28 stores in the first nine months of the year.
Roy expects the expansion pace to accelerate in the January-March quarter of 2026 (Q4FY26), potentially taking full-year additions to about 60 stores. He also noted a subtle but important shift in the company's expansion strategy, with greater openness to leasing rather than traditional store ownership, which could support faster expansion in newer markets such as Uttar Pradesh.
Sustainability Concerns and Valuation Challenges
While optimistic about near-term prospects, Roy cautioned that sustainability of margin improvement will be critical. Avenue Supermarts has seen its margins erode over the past few years, and while the last two quarters suggest a possible bottoming out, consistency will determine whether investor confidence returns.
"Sustainability is important," Roy emphasised, adding that the current quarter's improvement needs to be seen in context before drawing longer-term conclusions. He noted that while the stock remains expensive on valuation metrics, the recent correction has already priced in significant bad news, supporting a mild positive reaction in the near term.
Broader Retail Landscape and Stock Preferences
On the broader retail landscape, Roy cautioned against drawing direct parallels between different players, noting that retail remains highly competitive with each company operating under distinct business models. Factors such as GST transitions, discounting behaviour, and demand dynamics vary widely across retailers.
Regarding other retail stocks, Roy remains cautious on Trent, preferring to wait for clearer signs of improvement in growth and margins. However, he sees value emerging in ITC despite continued foreign institutional investor selling. Roy believes ITC's downside risks are limited, supported by:
- Attractive valuations
- Dividend yield of around 5%
- Expectations of price hikes that could aid margins
- Limited downside potential
Over a two-year horizon, Roy considers ITC a reasonable investment despite near-term sentiment challenges. For Avenue Supermarts, meaningful re-rating would require sustained sales growth of around 17-18% along with further margin recovery, as competitive intensity from e-commerce and quick-commerce players continues to rise.
Historical Stock Returns for Avenue Supermarts DMart
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +0.82% | +3.03% | -1.98% | -8.55% | +0.49% | +28.40% |
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