RK Damani’s DMart shows sign of margin pressure easing in Q2; is it time to buy stock?

Avenue Supermarts Ltd (DMart) reported a steady Q2FY26 performance with early signs of margin pressure easing. Analysts said while profitability remained under pressure, the pace of margin contraction is now the lowest in four quarters, indicating initial signs of stability.

DMart’s revenue, Ebitda, and PAT grew 15.4 per cent, 11.3 per cent, and 5.1 per cent year-on-year, respectively, with like-for-like (LFL) growth at 6.8 per cent. Standalone revenue rose 15.4 per cent YoY and 1.8 per cent sequentially, while revenue per sq. ft. increased 1.5 per cent YoY to Rs 36,549. The number of bills cut per store declined marginally by 0.3 per cent, but the average bill size grew a robust 15.8 per cent YoY. Following recent GST changes, the retailer has passed on reduced tax rates to customers wherever applicable.

Store expansion remained healthy, with eight new outlets added during the quarter, taking the total store count to 432. The company’s capital work-in-progress (CWIP) stood at Rs 1,500 crore, its highest ever, suggesting strong store addition potential over the next six months.

DMart Ready, its e-commerce arm, grew 16 per cent YoY during the quarter — slower than the previous 20 per cent-plus trend, Nuvama said. The company added ten new fulfilment centres in existing markets but exited five cities. The brokerage attributed the widening loss in subsidiaries to a higher proportion of delivery sales compared with pickup orders.

On profitability, gross margin remained flat at 14.2 per cent, down only 6 basis points YoY and 40 basis points QoQ, due to intensified FMCG competition and a shift in product mix. Nuvama expects some continued margin pressure owing to competition and higher operating costs, including wage inflation at entry-level positions amid a demand-supply mismatch for skilled workers. 

EBITDA rose 11.3 per cent YoY, while PAT increased 5.1 per cent YoY.

"We raise our FY26 Ebitda estimate by 2 per cent, led by a higher GM, while keeping FY27-28 estimates broadly unchanged. Our FY26-28E PAT is also broadly unchanged. We assign a 46 times Dec’27 EV/Ebitda multiple to arrive at our revised target of Rs 5,000. We reiterate our BUY on DMART," MOFSL said.

Acceleration in store additions remains the primary growth driver for the company, the brokerage said adding that  it continued to build in 60 store additions in FY26. 

Factoring in H1FY26 performance, Nuvama has trimmed its FY26/27 revenue estimates by 0.8 per cent/1.7 per cent and PAT estimates by 6.6 per cent/3.6 per cent. With a valuation rollover to H1FY28E, the brokerage has revised its target price to Rs 4,580 (from Rs 4,544) and maintained a ‘Hold’ rating on the stock.