DMART

’ s Q3 Margins Impress, But Sales Momentum and Valuation Raise Concerns

, which operates the DMart retail chain, reported a multi-quarter high EBITDA margin of 8.4% in Q3FY26, up 47 bps YoY, marking its first year-on-year margin expansion after six consecutive declines. While the margin beat lifted earnings estimates, revenue growth slowed to 13%, the weakest in ten quarters, and investor sentiment remained cautious amid rising competition and cost pressures. 1. Margin Expansion Highlights - Gross margin rose 50 bps YoY to 14.5%, aided by lower discounting and GST rate cuts. - Operating expenses grew slower, supporting margin gains. - EBITDA margin reached 8.4%, a multi-quarter high. - Staff costs surged 32% YoY to ₹350 crore, likely due to service-level investments. 2. Revenue and Store Metrics - Revenue growth moderated to 13% YoY, lowest in 10 quarters. - Same-store growth fell to 5.6%, vs 6.8% in Q2 and 8.3% in Q3FY25. - Impacted by deflation in staples and muted festive season footfall. - 10 new stores added, taking total to 442 as of December 31. 3. Sales Mix and Structural Constraints - Revenue mix: - Food (low-margin): 57.19% - FMCG: 19.83% - General merchandise & apparel: 22.98% - Continued tilt toward food limits structural margin expansion, per ICICI Securities. 4. Earnings and Valuation Outlook - JM Financial raised FY26 EPS estimates by 3%, but kept FY27 flat and cut FY28 by 3%. - Stock trades at ~69x FY27 earnings, reflecting rich valuation. - Share price up just 4% in past year, despite margin gains. 5. Risks and Strategic Watchpoints - Quick-commerce competition and labour cost inflation pose near-term risks. - New labour codes under evaluation; impact expected to be immaterial. - Re-rating depends on discretionary-led growth and store-level productivity, not margin alone.