Avenue Supermarts: Store Expansion Picks Up; Focus on North Rising. Maintain Add

Unlike FY25 and most of FY26 wherein SSSG/growth remained constrained by persistent staples deflation and inadequate store expansion, we suspect FY27 is likely to be a recovery year underpinned by recent macro-driven inflationary conditions (SSSG-friendly) and pick-up in store expansion (48 out of the 85 stores added in FY26 were in the month of Mar-26 itself; FY25 store additions were 50). Note: DMART’s 9MFY26 revenue/SSSG growth stood at 14.9/~6.5% YoY. The complexion of expansion is even more interesting. ~24% of incremental store additions in FY26 (vs 8% in FY23) has come in relatively underpenetrated North Indian markets, with Punjab, UP, and Haryana emerging as promising markets. If you club these with an additional ~19% incremental stores coming from Gujarat and Rajasthan (typically low on stock-up alternatives), one could expect SSSGs to remain healthy. Dmart Ready remains a WIP; widening PBT losses reflect the elevated cost structure of transitioning to a home delivery model. However, service levels continue to improve. We build in revenue/EPS CAGRs of 21.6/26.7% respectively over FY26-28E. We increase our FY27/28 EPS estimates by (3-8%) coming from realigning our store expansion to 80-85 stores annually (vs 70-75 stores earlier) and corresponding SSSG gains two years out (SSSG CAGR: ~10% over FY26-28 built). We maintain our ADD rating but our DCF-based TP stands revised at INR4,300/sh (implying 60x FY28 EPS; includes 50x FY28 EPS for the standalone business).

FY27 likely to be a recovery year; expansion stepped up in North India: Post a mediocre FY26, we suspect DMART may show signs of recovery, led by macro-driven inflationary conditions (SSSG-friendly) and a pick-up in store expansion. The grocer added 48 out of the 85 stores just in the month of March 2026 to close at 500 stores vs 50 stores added in FY25. Interestingly, 24% of the incremental store adds in FY26 has come in North India. An additional 19% from Gujarat/Rajasthan which are low on stock-up alternatives. We suspect this could help keep SSSG healthy over the next 2-3 years. Maharashtra (DMART’s anchor catchment) continues to decline in salience (from 31% to 26% over FY23-26) as ability to squeeze out incremental SSSG is limited and rising real-estate costs keep pace of expansion in check in these catchments. We’ve revised our store addition pace to 80-85 stores annually (vs 70-75 store earlier) and avg. SSSG of 10% vs ~6.5% in 9MFY26. We pencil in ~22/27% revenue/PAT CAGR with a modest ~60bps EBITDAM expansion over FY26-28 (upside risk here).

DMART Ready remains a WIP; service levels improving though: Growth in subsidiaries – which serves as a proxy for Dmart Ready – was 18.5% YoY in 9MFY26. However, PBT losses in subsidiaries widened to INR 1.73bn from INR 1.42bn in 9MFY25. We suspect this drag was due to the elevated cost structure associated with the company’s pivot from a pick-up point network to a home delivery model. Aligning with this transition, management is consolidating the segment’s geographic footprint to focus on key urban centers. Dmart Ready added 10 fulfillment centers in existing core markets while ceasing operations in 6 smaller cities, bringing its active presence down to 19 cities (from 25 at the end of FY25). Focus currently remains on improving delivery service levels.

On category performance: In 9MFY26, Dmart reported revenue growth of 14.9% YoY as topline growth was constrained by persistent deflation across staples and non-food products. Food/FMCG/GM&A grew 15.2/13.9/14.8% in 9MFY26 (vs 17.8/13.5/16.8% in 9MFY25). Looking ahead, we anticipate that evolving macroeconomic conditions may drive a gradual uptick in inflation, which should reverse the deflationary drag and provide a realization-led revenue tailwind for the overall company.

Outlook: Dmart’s rising focus on North India presence and under-retailed catchments serves as (1) an SSSG friendly move, and (2) key lever to offset saturation in legacy markets over the medium-to-long term. The step up in store addition is a plus too. We’ve revised our store addition pace to 80-85 stores annually (vs 70-75 store earlier) and avg. SSSG of 10% vs ~6.5% in 9MFY26. We pencil in 21.6/27% revenue/PAT CAGR with a modest ~62bps EBITDAM expansion over FY26-28 (upside risk here). We maintain our ADD rating but our DCF-based TP stands revised at INR4,300/sh (implying 60x FY28 EPS; includes 50x FY28 EPS for the standalone business).