D-Mart Shares Gain as Q3 Margins Exceed Expectations
Overview
Avenue Supermarts (D-Mart) reported better-than-expected EBIDTA margins in Q3FY26, driven by lower raw material costs and operational efficiencies. Following this improvement and a positive earnings outlook, analysts upgraded the stock from 'Underweight' to 'Equal-weight'. The retailer plans to continue cluster-based store expansion while refining its online business strategy.
Stocks Mentioned
Avenue Supermarts Limited, operating under the D-Mart brand, posted stronger-than-anticipated EBIDTA margins in the third quarter of fiscal year 2026. This marks a significant turnaround after a period of margin decline spanning five to six quarters. The improvement was primarily attributed to softening raw material prices and more efficient retail operations.
Q3 Performance Beats Expectations
The company's revenue climbed 13 percent year-on-year, buoyed by network expansion. Store count and retail business area each grew 14 percent. Despite flat revenue per square foot, impacted by deflation in staple categories, D-Mart's gross and EBIDTA margins saw improvements of 60 and 50 basis points, respectively. EBIDTA and net profits surged 20 percent and 18 percent year-on-year, outstripping revenue growth.
Same-store sales growth for mature outlets reached 5.6 percent in Q3FY26. The number of bills processed increased 12 percent year-on-year to 10.3 crore, indicating a slight rise in the average ticket size per transaction.
Retail Expansion Continues
D-Mart plans to sustain its cluster-based store expansion strategy, identified as a key growth driver. As of December 2025, the company operated 442 stores, having added 55 new outlets in calendar year 2025. This expansion maintained the average store size consistent with existing ones.
D-Mart has also deepened its presence in its established operational states, entering Uttar Pradesh to expand its footprint to 13 states.
Online Strategy Refined
The online arm, D-Mart Ready, has adjusted its geographical focus. The business has scaled back from 25 to 19 cities over the past year. The strategy now prioritizes key large towns over a broader, less concentrated presence, aiming to curb business losses.
Margin Improvement Sustains
The Q3FY26 margin beat is the first positive year-on-year performance in over a year, breaking a trend previously influenced by inflation-driven raw material costs and increasing operational expenses. This trend also saw increased competition from quick commerce players.
However, a general softening in raw material prices, including deflationary pressures on staples, is expected to support sustained margin improvements. Furthermore, D-Mart's decision to maintain existing store sizes, rather than opening larger ones, should help manage operational costs moving forward.
Management Change Confirmed
Ignatius Noronha will conclude his tenure as Chief Executive Officer on January 31, 2026. Anshul Asawa, currently CEO designate and an industry veteran with 30 years at Unilever, is set to assume leadership on February 1, 2026.
Valuation and Outlook
Trading at an estimated 70 times projected FY2027 earnings, D-Mart's stock has seen its earnings visibility improve. This outlook, coupled with the margin recovery, has prompted an upgrade in the analyst recommendation from 'Underweight' to 'Equal-weight'.
