Motilal Oswal Raises Price Target for Avenue Supermarts to Rs 5200

Avenue Supermarts Delivers Strong Profitability in 4QFY26

Avenue Supermarts (DMART) has reported a strong beat on profitability in 4QFY26, driven by gross margin (GM) expansion and operating leverage. The company accelerated its store additions, adding 58 stores in 4QFY26 (85 in FY26) to reach a total of 500 stores. This pace of store additions is expected to remain intact. With an acceleration in store additions (albeit back-ended) and recovery in like-for-like (LFL) growth (10.8% vs. ~6.8% in 3Q), revenue growth accelerated to 19% YoY.

Key Drivers of Profitability

The company's gross margin (GM) expanded by 30bp YoY to 13.8% (~20bp beat) in 4Q, driven by a favorable category mix, including a 20bp YoY increase in the share of higher-margin GM&A category. EBITDA rose ~26% YoY (~5% beat), driven by stronger GM and operating leverage (~1% YoY growth in cost of retailing (CoR) per sqft) as margin expanded ~35bp YoY to 7.2% (~35bp beat).

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FY26 Performance

For FY26, DMart's revenue/EBITDA/PAT grew 16%/16%/10% YoY, driven by ~20% YoY area additions, 8.1% LFL growth, and steady EBITDA margins. FY26 operating cash flow (OCF) rose ~40% YoY (vs. ~15% YoY growth in pre-IND AS EBITDA), while capex increased ~20% YoY (in line with area additions), leading to a free cash flow (FCF) outflow of INR5.8b (vs. INR9.1b YoY).

Outlook and Recommendations

We assign a ~45x FY28E EV/EBITDA multiple (implying ~81x FY28E P/E) to arrive at our revised target price (TP) of INR5,200. We reiterate our BUY recommendation on DMART.

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Note: YoY growth calculations are based on year-over-year comparisons.