Brokerage firm Prabhudas Lilladher has maintained a cautious outlook on Avenue Supermarts, citing rising competition from quick commerce and declining store metrics. Despite steady sales, the company faces pressure on store throughput and profitability, alongside plans to increase debt to fund future store expansions.
Avenue Supermarts, the operator of the popular DMart retail chain, is navigating a challenging environment as competition from quick commerce players intensifies. Brokerage firm Prabhudas Lilladher recently maintained a cautious stance on the stock, noting that while recent sales figures aligned with market expectations, underlying performance metrics are showing signs of strain.
Store Performance and Strategic Shifts
The company is seeing a shift in its operational efficiency. While DMart continues to add new locations—opening 58 stores in the fourth quarter—this rapid expansion appears to be impacting the performance of individual outlets. Data shows that sales per store and sales per square foot have declined by 3.7% and 3.0% respectively on a year-over-year basis. Furthermore, the number of bills per store per day dropped by 5.1%, indicating that newer locations are competing with existing ones or that customer traffic per store is softening.
Geographically, the company's performance is uneven. Stores in smaller, non-metro towns are performing better, whereas older stores in larger metropolitan areas are experiencing flat growth. This regional disparity highlights the evolving retail landscape where consumer preferences are shifting. In response to these pressures, the company has scaled back its online grocery platform, DMart Ready, withdrawing from 14 cities over the last 15 months to focus operations on 11 larger urban markets.
Financial Outlook and Debt Expansion
Financial projections suggest a period of increased capital requirements. To fund its aggressive expansion plan, which targets the opening of approximately 75 new stores in both FY27 and FY28, the company plans to raise Rs 10 billion through Non-Convertible Debentures (NCDs). This move is expected to increase the company’s debt burden, with estimates indicating a rise from Rs 11 billion in FY26 to roughly Rs 25 billion by FY27.
Profitability margins are also under scrutiny. Analysts anticipate EBITDA margins may moderate to 7.4% in FY27 and 7.0% in FY28, down from an estimated 7.5% in FY26. These narrower margins, coupled with the company's high valuation—trading at over 70 times its estimated FY28 earnings—contribute to the cautious sentiment among market observers. The company’s ability to maintain its traditional low-price model while managing rising debt and competitive threats remains a key area for investors to track. Moving forward, the effectiveness of the new store expansion strategy and the impact of quick commerce on its metro-based stores will be essential indicators of the company’s long-term operational health.