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Resilient growth, but margin strained

Dollar Industries' (DOLLAR IN) Q4FY26 revenue was broadly in line, though elevated cotton prices and higher discounting to distributors resulted in a miss of 13.7%/17.6% on EBITDA/PAT respectively versus our estimates. DOLLAR showed resilience with 12.0% YoY volume growth in a subdued demand environment. The company has taken price hike in Q1FY27 to mitigate elevated raw material prices, though considering persistent margin pressure from elevated cotton prices, increased competitive intensity, and slower rollout of Project Lakshya, we cut our FY27E/28E estimates by 19.1%/15.4% and introduce FY29E. We cut our TP to INR 360 (INR 426 earlier), valuing the stock on 13.0x FY28E P/E. We maintain BUY

Expect revenue CAGR of 12.0% in FY26-29E:

Revenue grew 13.2% YoY to INR 6,215mn in Q4FY26, on the back of healthy volume growth of 12.0% YoY. Ongoing pricing pressure, advanced winter-wear sales to Q2, and subdued demand weighed on Q4 sales. Contribution from the premium category such as ‘Force Nxt’ was 24.3%/16.0 to volume/value growth, underscoring a clear consumer migration towards higher-quality offerings. On a small base, the quick commerce channel grew 437% YoY, contributing 2.5% (versus 0.5% in FY25). Modern trade grew 24.2% YoY in FY26. We expect a revenue CAGR of 12.0% in FY26-29E, led by a 9.1% volume CAGR in FY26-29E.

Margin to reach 11.0% in FY28E:

Gross margin declined 574bps YoY to 42.9% against 48.6% in Q4FY25, on account of elevated cotton prices. EBITDA margin declined 101bps YoY to 9.3% in Q4FY26, due to higher brand-related promotion spending and elevated staff costs (up 19.0% YoY). EBITDA grew 2.0% YoY to INR 577mn. Gross margin (including subcontracting expenses) dropped 169bps YoY to 28.6%, due to higher incentives provided to distributors. The management has undertaken a calibrated price hike in early Q1FY27 to mitigate input cost increases, providing some near-term margin support. We expect EBITDA margin of 10.4% in FY27E, 11.0% in FY28E and 12.0% in FY29E

Project Lakshya – Slower-than-expected execution:

In Q4, DOLLAR added one distributor, taking the count of Lakshya distributors to 319 in Q4FY26. Revenue from Project Lakshya grew 5.4% YoY, contributing 27% to sales versus 29% in Q4FY25. The Phase 2 pilot has commenced, with DOLLAR focused on deepening presence in its core state and developing tailored market-entry strategies in non-dominant territories. However, we expect the pace of scale-up to likely moderate until demand conditions and competitive intensity improve materially, implying a continued pressure on operating leverage

Reiterate BUY; TP pared to INR 360:

Expect revenue/EBITDA/PAT CAGRs of 12.0%/16.8%/24.2% in FY26-29E, led by high single-digit volume growth and faster growth of emerging categories. Factoring in elevated cotton prices straining near-term gross margins, increased competition limiting core-category volume growth, and a slower rollout of Project Lakshya, we cut our FY27E/28E estimates by 19.1%/15.4% and introduce FY29E. We revise our TP to INR 360 (INR 426 earlier), valuing the stock on 13.0x FY28E P/E. Maintain BUY. Key risks are a sharp volatility in input prices, slowdown in demand and further delay in implementation of Project Lakshya.

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