Sell Avenue Supermarts Ltd for the Target Rs.3,700 by Emkay Global Financial Services Ltd
We maintain SELL on DMART with an unchanged TP of Rs3,700 (54x FY28E EPS), on slow TAM expansion, fading USP of value/assortment vs Q-Com, deteriorating ROIC, and expensive valuation at ~80x 1Y fwd PE. Q4 was a healthy but in-line quarter, with 23-25% EBITDA/PBT growth, helped by LFL growth improving to 11% (vs ~7% in 9M), accelerated store expansion, and an EBITDA margin gain of ~40bps. However, DMART attributed the LFL uplift to a spike in consumer buying in Mar-26 (amid geopolitical tensions), which normalized toward Q4 end; this was also reflected in a 5% increase in ABV in Q4 vs ~2% in 9M. With accelerated store openings, we expect topline growth to inch up to ~19% in FY27E (vs ~16% in FY26), but higher allied costs are likely to restrict PAT growth to ~16%. Capex per sqft has likely optimized by ~18% in FY26, though TP accretion is offset by a likely higher share of leased store additions (lower NPV). FCF was negative at ~Rs9bn in FY26, of which ~Rs6bn was consumed in the standalone business and ~Rs3.5bn toward increased subsidiary investments. Net subsidiary revenue grew ~18%, while losses increased ~10% to Rs2.4bn in FY26.
Pantry loading drives LFL uplift; no major improvement in bill cuts growth
Q4 standalone revenue was up ~19% YoY, led by 10.8% LFL growth and the rest through store additions. The LFL uptick was largely led by ~5% increase in average bill value (vs 2% in 9M; ABV), with no major improvement in bill cuts growth per store. The management also attributed the increase to a spike in consumer buying in Mar-26, led by geopolitical tensions, which normalized toward the end of Q4. During the quarter, 58 new stores were added (85 in FY26), taking the overall store count to 500 spread across 20.6mn sqft. Standalone gross margin (GM) at 13.8% was up ~30bps YoY, likely aided by a higher mix of general merchandise and apparel (up ~20bps) at 20.3%. EBITDA margin improved ~40bps to 7.2%, led by an improvement in GM and lower other expenses (down ~40bps YoY), partially offset by higher employee expenses (up ~30bps YoY). Absolute EBITDA at Rs12.3bn was up 26%, while PAT grew by 17%, with lower growth reflecting higher interest cost at Rs377mn (vs Rs160mn last year) and elevated tax expenses. Subsidiary revenues grew ~17%/18% YoY in Q4/FY26, while EBITDA loss stood at Rs206/686mn in Q4/FY26 (vs loss of 554mn in FY25).
Aggressive store expansion leads to increase in capex; RoIC moderates further
Working capital efficiency improved marginally with NWC days at ~22, vs ~24 days in FY25. The company reported negative free cash flow of ~Rs4bn in FY26, driven by an aggressive expansion strategy, with 85 store additions and total capex of ~Rs40bn (including intangibles, investment properties, CWIP, capital advances, and capital creditors). Consequently, the balance sheet reflects a modest increase in leverage, with debt balance at Rs9.65bn. Post-tax RoIC moderated to ~14.4%, reflecting a ~60bps decline in FY26.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
