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Topline growth improved, margins under pressure

Avenue Supermarts Ltd. (DMart) owns & operates India’s most profitable supermarket chain, DMart. It provides products like food, non-food (FMCG), general merchandise & apparel through 387 stores (total 16.1mn sq. ft).

* Revenue grew by 17.5% YoY, while like-for like growth (for stores operational for 24months) declined to 8.3% from 8.6% YoY.

* Gross margin declined by 16bps YoY to 14.1% due to lack of improvement in the product mix. EBITDA growth was 10%YoY as EBITDA margin declined by 60bps YoY to 7.9% due to higher employee costs and other expenses.

* General merchandise & apparel category mix which commands a higher margin has not seen any material improvement from last year despite festive season.

* Strong store additions continued as DMart has added 22 stores in 9MFY25 vs. 17 YoY (41 stores in FY24). This will support future topline growth.

* DMart is gradually improving its E-Com business channel, ‘DMart Ready’, currently available in ~25 cities (24 QoQ), which now contributes ~2.5% of total revenue. DMart Ready business grew by 21.5% YoY in 9MFY25.

Outlook & Valuation

The increasing prevalence of online grocery formats, particularly in major metropolitan areas has recently led to a moderation in topline growth. We anticipate continued margin pressure in the short term due to competition. However, DMart’s robust balance sheet, with no debt and strong operational efficiency, will support ongoing store expansions, fostering future revenue growth. Furthermore, lower inflation is expected to enhance discretionary product mix and margins We expect Revenue/PAT to grow at a 18%/16% CAGR over FY24-27E DMart currently trades at 69x 1Yr Fwd PE (2yr avg =78x). We reduced our earnings estimates and revised our target to Rs.4,107 (earlier Rs. 4,471) by valuing on a DCF basis which implies 62x on FY27 EPS.

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