Avenue Supermarts Faces Margin Pressure in Q4 Amid Store Growth and E-Commerce Shifts

Avenue Supermarts, operator of India’s popular DMart chain, reported a 2% year-on-year decline in consolidated net profit to ₹551 crore for the quarter ended March 2025. While standalone profits rose modestly and revenue surged 17%, the results highlighted mounting challenges for the retailer, including margin erosion, rising costs, and intensified competition. Shares fell 3% in early trading, eroding promoter wealth by ₹60,000 crore—a stark reminder of investor sensitivity to profit pressure in one of India’s most recognizable retail brands.

Margin Contractions Signal Structural Challenges

The quarter’s standout issue was a 9% miss on EBITDA expectations, which fell to ₹980 crore amid an 80 basis-point (bps) contraction in margins to 6.8%. Analysts pointed to rising operating costs per square foot—up 12% YoY—and weaker gross margins as key drivers. Sequentially, margins dropped even further, by 115 bps, underscoring the strain of scaling operations in a costlier environment.

While DMart’s hybrid model—combining physical stores and its DMart Ready e-commerce platform—showed promise, the online segment’s growth came at a cost. The closure of lower-performing “pick-up points” (PUPs) in non-metro areas reduced delivery complexity but also cut sales channels. Management framed FY25 as a “reset” year, prioritizing service quality over short-term profitability.

Store Expansion and Regional Dynamics

The company added 28 stores in Q4, bringing FY25’s total to 50—a pace that underscores its confidence in market demand. Notably, non-metro stores outperformed metros, with two-year-old stores growing 8.1% in Q4 (down from 10.3% in Q4FY24). This reflects a shift in focus to smaller towns, where DMart’s value proposition of affordable, curated essentials resonates more strongly than in crowded metro markets.

Analysts Split on Near-Term Prospects

Brokerage reactions were mixed. Jefferies downgraded the stock to “Hold,” citing margin pressures and competitive threats in the fast-moving consumer goods (FMCG) sector. Meanwhile, Motilal Oswal maintained a “Buy” rating but lowered its target price to ₹4,350, citing “heightened competitive intensity” and rising cost pressures. The brokerage noted that DMart’s 7.9% full-year EBITDA margin in FY25—down from 8.3%—signals a need for operational efficiency gains to stabilize returns.

Management’s Playbook: Scaling and Transition

CEO Neville Noronha emphasized that DMart’s “well-anchored” brand equity remains intact, even as mature metro markets face margin headwinds. The transition to new CEO Anshul Asawa—slated to take over in 4-5 months—will focus on accelerating store growth and refining the e-commerce model. A recent lease for 35,000 sq ft in a Ghaziabad mall, at ₹21 lakh/month for 29 years, signals long-term commitment to physical expansion.

Conclusion: A Hybrid Model in Transition

Avenue Supermarts’ results paint a complex picture. While revenue growth and store expansion demonstrate demand resilience, margin pressures and rising costs highlight execution risks. The company’s pivot to non-metro markets and e-commerce in select urban areas could pay off, but profitability for its digital arm remains elusive.

Crucial metrics to watch include:
- EBITDA margins: A rebound to 8% or higher would ease investor concerns, given the 6.8% Q4 print.
- Store productivity: Sustaining 8-10% growth in older stores is critical to offsetting higher costs.
- E-commerce scalability: DMart Ready’s ability to replicate metro success without excessive PUP closures will test management’s strategy.

With a FY26-27 EBITDA downgrade of 5% by Motilal Oswal and a stock price now reflecting these concerns, investors must weigh DMart’s long-term positioning against near-term profitability. For now, the company’s hybrid model retains its appeal, but margin recovery—and cost discipline—will be the ultimate litmus test.

In a sector where competition and costs are intensifying, DMart’s path to sustained profitability hinges on balancing aggressive expansion with disciplined cost management—a tightrope walk that will define its next chapter.