Whalesbook
Motilal Oswal issued a 'Buy' rating for Avenue Supermarts, setting a target price of ₹4,600. The brokerage's optimism follows the retailer's strong performance in the third quarter of fiscal year 2026, as detailed in a report dated January 11, 2026.
Robust Profitability in 3QFY26
Avenue Supermarts surpassed profit expectations, driven by significant gross margin expansion. The gross margin grew 50 basis points year-on-year to 14.6%, likely benefiting from reduced discounting due to GST reductions and a favorable shift towards higher-margin categories like General Merchandise & Apparel and FMCG.
Additionally, the company achieved stable cost of retailing per square foot after several quarters of increases. This operational efficiency contributed to a 50 basis point expansion in EBITDA margin to 8.4%, beating expectations by approximately 80 basis points. Consequently, standalone EBITDA saw a healthy 20% year-on-year growth.
Moderated Revenue Growth Amid Store Expansion
Despite strong profit figures, revenue growth moderated to around 13% year-on-year. This was primarily supported by a substantial addition of store area, which increased by approximately 14%. However, like-for-like sales growth slowed to 5.6%, a decrease from 6.8% in the previous quarter and 8.3% year-on-year.
Avenue Supermarts added 10 new stores during the third quarter of fiscal year 2026, bringing the total additions in the first nine months to about 27, an increase from 22 in the same period last year. The acceleration in store additions remains the core growth engine for the company, with Motilal Oswal projecting 60 store additions for the full fiscal year 2026.
Valuation and Outlook
Motilal Oswal has assigned a target price of ₹4,600 based on an approximate 43 times FY28 EV/EBITDA multiple, which translates to roughly 79 times FY28 Price-to-Earnings. The firm reiterates its 'Buy' recommendation on Avenue Supermarts, signaling confidence in the company's long-term prospects driven by its expansion strategy and improving operational efficiencies.