But profitability may be low due to higher operating costs, and higher general merchandise and apparel costs. Investments in new stores have also reduced return on capital employed (RoCE). Gross profit margins have been in the 14-14.5 per cent range during FY21-FY25. But gross margin could be under pressure now, and this could feed into lower operating profit margins.
DMart is looking for store clusters, trying to deepen its presence where it is already present before entering new towns. Notably, 48 out of the 58 new stores in Q4FY26 were added in March alone. However, DMart has also entered new markets in Haryana, Goa, and Odisha.
Brick and mortar contributes 95 per cent to revenues. DMart is a discount grocery retailer, and under the brand DMart Ready, the company is expanding online, offering app-based, home delivery, or pickup options for groceries and household essentials. Management had previously noted real estate inflation has hurt RoCE, which contracted by 130 basis points (bps) Y-o-Y to 17.1 per cent in FY25 from 18.4 per cent in FY24. During FY25, DMart reported negative free cash flow of ₹750 crore, with capex of ₹3,300 crore.
While revenues and operating profit growth could be in mid-teens until FY28, subdued gross merchandise, weak performance in mature stores, and low same store sales growth could keep margins down. Increased competitive intensity from online grocery/quick commerce (qcom) in metros/Tier-1 cities may be another concern. Market share loss to qcom players is visible and may continue in larger cities and metros. New qcom entrants like Amazon also have deep pockets to sustain their rollouts.
For DMart, high store additions could boost FY27 and FY28 revenue growth, maybe in the high teens, like 19 per cent in Q4FY26, even if margins are a concern. New store additions are skewed with over 70 out of 85 new stores in FY26 added in Tier-II and Tier-III cities where qcom is less of a current concern.
This policy of aggressive store addition may continue under the new chief executive officer (CEO). The company update is that its Q4FY26 standalone revenues came in at ₹17,200 crore, indicating revenue growth of 19 per cent Y-o-Y. This was an acceleration from 13.2 per cent Y-o-Y standalone sales growth in Q3FY26.
DMart may also benefit from fast-moving consumer goods (FMCG) product inflation and a shift toward value retail, given fears of prolonged inflation. Analysts may upgrade revenue estimates for FY27 and FY28, and are also raising earnings estimates due to store additions even if margins drop.
Value investors will see a big mismatch between growth and valuations. DMart’s revenue growth has moderated to under 20 per cent, down from earlier annual growth of 30 per cent. Qcom and brick and mortar rivals like Reliance Retails are reporting lower same store sales growth. The stock is very highly valued with an average five-year valuation at one-year forward price to earnings of 90 times.
The strategy of expanding store network may remain the revenue growth driver. The online space is already crowded and DMart Ready will find it hard to gain market share. In general merchandise, margins are much higher than grocery, which is an advantage.
Several analysts have a “Sell” and “Reduce” recommendations on the basis of lower growth, lower margins, and high competition versus very high valuations. DMart’s ownership model leads to long paybacks. The stock is expensive and may remain so, with low or negative free cash flows as the expansion continues.
The bear case could be challenged by fast store rollout, successful penetration of DMart Ready, and a strong rebound of discretionary consumption demand, especially in the middle-income demographic.
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