Avenue Supermarts Q3 Review: DMart Rides Margin Tailwind, But Competitive Pressures Remain High

DMart parent Avenue Supermarts Ltd.’s December quarter earnings beat was driven almost entirely by a sharp margin surprise, even as growth continued to slow, note brokerages. In this article, we will delve into the details of Avenue Supermarts’ Q3 performance, the factors driving the margin surge, and the implications for Indian investors and traders.

Margin Expansion: A One-Off or Sustainable Trend?

Goldman Sachs said Avenue Supermarts reported a 60 basis point year-on-year expansion in consolidated gross margin, the highest in several quarters, which drove profit before tax growth of 18% annually — far stronger than the 2% average PBT growth seen over the last five quarters. PBT came in 20% ahead of Goldman’s estimates. Revenue growth was already known from the quarterly update.

However, Goldman Sachs flagged the margin spike as largely one-off, attributing it to trade discounts from FMCG companies clearing pre-GST channel inventory. As a result, it does not see the gross margin expansion as sustainable. This raises questions about the company’s ability to maintain its profit margins in the face of intense competition in the Indian retail sector.

Operating Costs and Store Expansion

Operating costs offered some relief, with opex per store growth moderating over the past three quarters after rising at double-digit rates from FY25 as DMart invested in store upgrades. Goldman raised FY26 EPS by 6% due to the margin spike and FY27–28 EPS by 2% on slightly lower store opex, but kept sales growth assumptions unchanged at 17% for FY27 and FY28 and maintained a ‘sell’ rating, citing sustained competitive intensity.

DMart added 10 stores in 3Q, taking the total to 442, but still has only one store in Uttar Pradesh, defying expectations of faster expansion there. DMart Ready remained in 19 cities, unchanged sequentially. On labour codes effective November 21, 2025, management said the impact on own employees is not material, with evaluation ongoing for contract labour.

Management Transition and Competitive Landscape

Jefferies echoed the view that margins, not growth, drove the earnings beat. Standalone Ebitda rose 20% to Rs 1,500 crore, with Ebitda margin expanding 50 bps, the highest in six quarters.

Jefferies also highlighted a management transition, with Ignatius Navil Noronha stepping down as MD & CEO on January 31, 2026. Anshul Asawa will become CEO from February 1, 2026 and MD from April 1, as Jefferies retained its ‘hold’ rating.

The Indian retail sector is highly competitive, with players like Reliance Retail and Future Group vying for market share. DMart’s ability to navigate this competitive landscape and maintain its profit margins will be crucial to its long-term success.

Investment Implications

For Indian investors and traders, Avenue Supermarts’ Q3 performance presents a mixed bag. On the one hand, the company’s margin expansion and operating cost relief are positive developments. On the other hand, the sustainability of these trends and the company’s ability to navigate the competitive retail landscape are concerns that need to be addressed.

As the Indian stock market continues to evolve, it is essential for investors to stay informed about the latest developments and trends. You can stay up-to-date with the latest news and analysis on the Indian stock market by visiting our website.

Conclusion

In conclusion, Avenue Supermarts’ Q3 performance was driven by a sharp margin surprise, but growth continued to slow amidst high competitive pressures. While the company’s operating cost relief and management transition are positive developments, the sustainability of its profit margins and its ability to navigate the competitive retail landscape are concerns that need to be addressed. As the Indian retail sector continues to evolve, it is essential for investors to stay informed and adapt their investment strategies accordingly.