In a significant turnaround, Avenue Supermarts Ltd, the operator of the popular DMart supermarket chain, reported its best quarterly margin performance in several quarters for the period ending December 2025. The company's standalone EBITDA margin expanded to 8.4%, marking a year-on-year increase of 47 basis points and breaking a streak of six consecutive quarters of decline.
The Drivers Behind the Margin Surge
The margin improvement, announced on Saturday, 10th January 2026, was driven by a combination of factors. A key contributor was a 50 basis points rise in gross margin to 14.5%. Furthermore, the growth in other operating expenses slowed down, providing additional relief. Industry observers also point to potential benefits from reduced discounting following recent cuts in Goods and Services Tax (GST) rates.
Reacting to the robust margin performance, several brokerage firms have revised their earnings estimates upwards. However, the stock market's response on Monday was notably tepid, with DMart's share price rising a mere 0.8%. This muted reaction underscores a prevailing sense of caution among investors regarding the sustainability of this performance.
Clouds on the Horizon: Competition and Costs
The primary concern for analysts and investors alike is whether DMart can maintain these elevated margins. The Indian retail landscape is becoming fiercely competitive, especially with the rapid rise of quick-commerce players promising delivery in minutes. Simultaneously, the company continues to face operating cost pressures.
A significant sore point is the 32% year-on-year jump in staff costs, which reached ₹350 crore in Q3. Management has previously indicated this spending is aimed at improving in-store service levels. Additionally, the company's revenue growth has moderated, hitting 13% in Q3—the slowest pace in at least ten quarters. Like-for-like growth, a measure of sales from stores operational for over 24 months, also decelerated to 5.6% from 6.8% in Q2 and 8.3% in Q3FY25.
Anshul Asawa, the CEO-designate set to take full charge in early 2026, attributed part of the revenue slowdown to deflation in staple product prices. The company's sales mix also remains a structural headwind for margins, with the low-margin food category constituting 57.19% of revenue for the nine months ended December.
Store Expansion and Future Outlook
On the expansion front, Avenue Supermarts opened 10 new stores in Q3, bringing its total count to 442 as of 31st December 2025. However, some brokerages, like JM Financial, have cut their long-term store opening estimates due to a slower-than-expected ramp-up, leading to a 3% reduction in their FY28 earnings projections.
The company is also evaluating the impact of the new labour codes effective from 21st November. While the initial assessment suggests the financial impact will not be material, it remains an area of monitoring. Despite the margin beat, the stock's rich valuation—trading at around 69 times its estimated FY27 earnings—and decelerating revenue momentum have kept its one-year return at a modest 4%.
Analysts at ICICI Securities noted that the Q3 margin improvement appears to be led by execution and seasonality rather than a fundamental shift in business mix. They emphasize that a meaningful re-rating of the stock would require a sustained recovery in discretionary spending and store-level productivity, not just margin support. With near-term growth prospects challenged by intense competition, the party for DMart's margins might face a stern test in the coming quarters.
