Avenue Supermarts, known for its DMart retail chain, is one of India’s most prominent players in the organized retail sector. Citi’s latest report highlights that the company’s growth trajectory is under strain due to slower same-store sales and rising operational costs. The expansion into smaller towns, while strategically important for long-term growth, has temporarily diluted overall throughput and profitability.

Citi’s analysts also point out that the aggressive pace of store additions has coincided with heightened competition from quick commerce platforms, leading to market share fragmentation in key product categories like FMCG and groceries. Despite strong execution capabilities, DMart’s value proposition is being challenged by new-age delivery platforms offering faster convenience.

Citi observed a miss on revenue growth in DMart’s Q2FY26 update. The moderation in topline expansion reflects slower footfall recovery and weaker discretionary spending trends. Urban stores continue to perform better than rural outlets, but the company’s ongoing expansion into Tier-3 and Tier-4 towns has pressured average revenue per store.

The brokerage expects the revenue recovery to be gradual, especially as macro headwinds such as inflation and rising household expenses limit consumption in mid-income segments. This slowdown is also prompting market participants to align short-term trades using data-driven insights like Nifty Intraday Tips for retail-focused sectors.

A concerning highlight in Citi’s note is that DMart’s EBITDA margin has fallen year-on-year in 11 of the last 12 quarters. Rising operating expenses, supply chain inefficiencies, and a higher share of low-margin products have all contributed to margin compression. The brokerage warns that competition from quick commerce firms—offering express delivery and discounts—poses structural risks to DMart’s pricing advantage.

Additionally, the company’s foray into smaller towns has increased fixed costs, particularly rent and logistics expenses. Although DMart continues to expand its store base, analysts believe that profitability will remain under pressure until throughput per store improves meaningfully.

The rapid rise of quick commerce companies has disrupted the traditional retail model. Players like Blinkit, Zepto, and Swiggy Instamart have significantly increased their market share in urban grocery delivery, reducing the frequency of physical store visits. Citi’s analysis notes that this shift in consumer behavior is impacting DMart’s throughput and footfall conversion rates.

To mitigate these pressures, DMart is enhancing its e-commerce operations through DMart Ready. However, scalability and profitability in this vertical remain uncertain in the near term. Citi concludes that the structural margin challenge warrants a cautious stance despite DMart’s strong execution history and operational efficiency.

Citi’s Sell recommendation on Avenue Supermarts signals a cautious approach toward retail sector valuations amid weak near-term fundamentals. The company’s slower revenue growth, continued margin stress, and competitive pressures from quick commerce platforms make a strong recovery less likely in the immediate future. Investors are advised to track same-store sales growth and margin trends over the next two quarters for potential re-rating triggers.

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