Avenue Supermarts

Investment case

Lowest-cost grocer; LFL normalising

Why this business

Avenue Supermarts runs DMart, India's largest listed value grocery/general-merchandise chain with 503 owned stores as of 30-Jun-2026 (500 at Mar-2026; record 85 added in FY26) and FY26 revenue Rs 68,821 cr (+16%). Sales mix in Q1FY27: food 54.9%, non-food FMCG 19.6%, general merchandise & apparel 25.5%. DMart Ready (e-commerce) operates in 11 cities after exiting 7. Management sees room for 2,000-2,200 stores long term and targets 10-15% annual network growth.

What we believe

1. 01Store engine accelerating: record 85 stores added in FY26 (500 total), management now targets 10-15% network growth and 2,000-2,200 stores long-term vs 503 today; FY26 revenue +16%, Q1FY27 +14.9%.
2. 02Buoyant's published view: the weak Q1FY27 LFL (5.5%, metros flat) was partly a temporary supply/discount distortion as quick-commerce players pushed volumes around the Zepto IPO; Q4FY26 LFL had been 10.8%, so normalisation is the base case (per Buoyant Capital note supplied by the PMS; not independently located online).
3. 03Margins resilient: EBITDA margin 8.0% (+10bp) and gross margin +50bp in Q1FY27 as general merchandise/apparel rose to 25.5% of sales; consensus models 17.6% p.a. earnings growth and ~14% ROE in 3 yrs.
4. 04Non-metros still growing well and 80%+ of quick-commerce GMV is metro-concentrated (Redseer), so most of DMart's future store pipeline sits outside the q-commerce battleground.
5. 05Balance sheet: near debt-free (borrowings Rs 2,425 cr vs equity Rs 24,464 cr, mostly leases), promoter holding 74.5%, self-funded expansion; DMart Ready losses (Rs 91 cr/qtr) being curtailed by exiting 7 cities.

Why now

TTM PE 78.9x is below the stock's 100x+ peaks of 2021-22 but still ~4x the Nifty; 5-yr average PE not sourced. EV/EBITDA computed on mcap + Rs 2,425 cr borrowings (largely leases) over FY26 EBITDA. EV/EBITDA 46.9x; dividend yield 0.0%.

Market disagreement

• Reliance Retail: Not separately listed (inside RIL/Jio-Reliance Retail pre-IPO); DMart is the only listed pure-play with owned-store economics, 8% EBITDA margin and 74.5% promoter skin in the game.
• Zepto (private, IPO-bound): Zepto is loss-making (IPO proceeds of Rs 8,010 cr earmarked partly for dark-store leases and marketing) with ~35% q-commerce share; DMart earns Rs 2,970 cr PAT and funds growth internally.
• Vishal Mega Mart: Vishal is a tier-2/3 value-fashion/general-merchandise play with PE-sponsor overhang; DMart has 4x the revenue, stronger grocery frequency and owned real estate, though at a higher multiple.

Position sizing

Core Large cap  1.3% of the PMS on $31 Jul 2026 (August rank 23). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• Q2FY27 business update (early Oct-2026) and results (mid-Oct-2026): LFL recovery toward 8-10% would validate the 'temporary distortion' thesis.
• FY27 store additions tracking 10-15% network growth (i.e. 50-75+ stores) with H2 skew.
• Zepto IPO pricing/post-listing discipline on discounts (targeted 2026 listing) reducing subsidy intensity in metro grocery.

Risks and response

• Quick-commerce share loss in metros persists beyond the IPO-period distortion: metro older stores flat YoY in Q1FY27 and revenue/sq ft falling; Goldman/Citi flag this as structural.
• Valuation: ~57x FY28E consensus EPS leaves no room for LFL or margin disappointment; stock fell 8% in 2 days after the Q1 update.
• Cost inflation: staff costs +30% YoY in Q1FY27 capped EBITDA expansion; only 3 stores added in Q1 vs 85 in FY26 (seasonal but watch FY27 pace).

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p61) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: Core

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p61. Internal; external publication of these fields is controlled by audience policy.