Avenue Supermarts, widely recognized for its popular DMart chain, is ramping up its expansion efforts as competition in the grocery retail sector heats up. In its latest business update, the company revealed an impressive addition of 28 new stores in the March quarter (Q4) of FY25, marking the highest growth rate in four years. This ambitious plan will see DMart open a total of 50 stores throughout FY25, the largest annual increase since the pandemic recovery in FY22.

Expanding Reach Amidst Challenges

The surge in store openings is an essential strategy for DMart to enhance its market presence. However, analysts from Citi Research and Morgan Stanley have indicated that the retailer is facing significant challenges with earnings due to decreased sales throughput and an unfavorable product mix. In Q4, DMart reported a year-on-year revenue increase of nearly 17%, reaching ₹14,462 crore. For the entire FY25, total revenue climbed to ₹57,789 crore, reflecting a 16.6% growth compared to the previous year, though this is below the five-year compound annual growth rate (CAGR) of 18.5% noted by Morgan Stanley.

• Key Financial Highlights:
  • Q4 FY25 Revenue: ₹14,462 crore (17% YoY growth)
  • FY25 Total Revenue: ₹57,789 crore (16.6% YoY growth)
  • Store Additions: 50 stores planned for FY25

Stock Performance and Market Sentiment

On the Bombay Stock Exchange (BSE), shares of Avenue Supermarts experienced a 5% dip during intra-day trading on Friday, ultimately closing at ₹4,039.30, down 2.82% from the previous day. In a recent analysis, Citi Research noted that the average revenue per store grew by 3.1% year-on-year in Q4 FY25, a slight improvement compared to the 1-7% growth range observed in prior quarters.

Despite these promising figures, there are concerns regarding sales performance at DMart locations. The decline in contributions from general merchandise and apparel has been attributed to a slowdown in discretionary spending. Furthermore, the addition of stores in smaller towns and the increasing pressure from quick commerce are further compounding earnings concerns.

Adapting to Market Trends

Avenue Supermarts was among the first grocery retailers to highlight the impact of quick commerce (q-commerce) on its metro operations about a year ago. Industry experts note that the q-commerce landscape has evolved since then, negatively affecting both traditional and modern retail sectors. In response to aggressive competition, DMart has ramped up discounts and enhanced its delivery services through DMart Ready fulfillment centers in select areas.

While these strategies have helped DMart retain its market share in the grocery segment, analysts at Motilal Oswal caution that such measures have also compressed profit margins. In Q3 FY25, DMart’s operating margins fell below the critical 8% threshold to 7.6%, leading to a more cautious outlook from investors.

Analyst Ratings and Future Outlook

Among the 31 analysts covering Avenue Supermarts, opinions are mixed:

• 12 analysts recommend a ‘Buy’ rating
• 9 suggest a ‘Hold’ rating
• 10 advise a ‘Sell’ rating

As Avenue Supermarts navigates this competitive landscape, the company’s ability to balance growth with profitability will be crucial in maintaining investor confidence and sustaining its market position.

In conclusion, while Avenue Supermarts is making significant strides in expanding its store network, it faces various challenges that may affect its future performance. Keeping an eye on how the company adapts to evolving market dynamics will be essential for investors and industry observers alike.