DMART Revenue Grew 25%. Margins Are Still Shrinking.

The Margin Compression Isn't a One-Quarter Story Anymore

This filing covers the quarter ended December 31, 2022 - Q3 of Avenue Supermarts' FY2023, DMart's festive-season quarter. Revenue grew 25.51% year-on-year to Rs. 11,569.05 crore, a strong top-line number consistent with a normal festive quarter. But net income grew just 6.72% to Rs. 589.64 crore - because total expenses grew 27.02%, genuinely faster than revenue, for the second consecutive quarter after Q4 FY2022 first showed this pattern. Operating income grew only 8.46%, and operating margin fell to 7.16% from 8.29% a year ago.

Depreciation and Amortisation is once again the single fastest-growing major expense line, up 31.01% year-on-year to Rs. 168.09 crore - continuing an unbroken acceleration since the capex-driven jump first flagged in Q4 FY2022 and repeated in Q1 and Q2 FY2023. This is now a three-quarter trend, not a one-off: DMart's store-expansion capex is structurally raising its depreciation base faster than revenue is growing, and margin compression is the mechanical, entirely explicable result. Employee costs (+18.86%) and finance costs (+21.72%) also outpaced revenue this quarter, adding to the squeeze on top of depreciation.

The Prescription

Three consecutive quarters of expenses outgrowing revenue - traced entirely to real capex and cost growth, not a one-off event - means management should treat this as a genuine trend to manage rather than a run of unlucky comparisons. The store-expansion strategy itself remains the right long-term call; a growing depreciation base is the natural cost of a growing owned-real-estate footprint, and should reverse in relative terms as newer stores mature and their revenue catches up to their fixed costs. What it should stop doing: treating each quarter's margin compression as a standalone, unexplained line item. Three straight quarters into this pattern, the filing owes shareholders at least a sentence connecting the depreciation growth to store-count growth explicitly, rather than leaving a reader to notice the trend by comparing four separate quarterly posts.

Key Financial Metrics

Quarter ended December 31, 2022 (consolidated), compared against Q3 FY2022 (quarter ended December 31, 2021)

FX: INR 82.8351 = USD 1 (December 30, 2022 month-end).

Festive-season seasonality note: this quarter contains Diwali and the bulk of India's autumn/winter festive retail spending, structurally the strongest quarter of DMart's fiscal year - the margin compression described here is happening despite the usual seasonal tailwind, which makes the underlying cost-growth trend more notable, not less.

Operating Income and Adjusted EBITDA are reconstructed the same way as every DMart quarter on this site: Operating Income = Profit Before Tax + Finance Costs; Adjusted EBITDA adds back Depreciation and Amortisation (Rs. 168.09 crore, up 31.01% year-on-year - the fastest-growing major cost line for a third straight quarter) on top of that. No balance sheet or cash flow statement is disclosed as a separable quarter figure in this filing.

Paid-up equity share capital held flat at Rs. 647.775 crore.

Unlike Q4 FY2022, where a rising tax rate did meaningful damage on top of the depreciation jump, and unlike Q2 FY2023, where a one-off tax benefit flattered the bottom line, this quarter's tax rate (27.36%) was almost unchanged year-on-year (26.35%). That makes this the cleanest read yet of the underlying margin-compression trend: it's coming entirely from operating costs - principally depreciation - not from anything happening below the operating-income line.

Stock Price: Drifting Sideways Through the Compression

DMart's stock closed this quarter at Rs. 4,068.75 - up modestly (1.63%) from Rs. 4,003.35 at the end of Q4 FY2022, essentially flat across three quarters now. Over the trailing two years to this quarter's close, the stock ranged from a low of Rs. 2,651.50 (early 2021) to a high of Rs. 4,710.90 (November 2021), and has traded in a comparatively narrow band through 2022 - a market that appears to be digesting the margin-compression trend in real time rather than either dismissing it (as it did through the 2020-2021 COVID recoveries) or panicking about it.

Beyond the Usual

A Third Straight Quarter of Expenses Outgrowing Revenue

Total expenses have now grown faster than revenue for three consecutive quarters - [Q4 FY2022](/analysis/dmart/2022-03/), [Q2 FY2023](/analysis/dmart/2022-09/) (partially masked there by the one-off tax benefit), and this quarter - with depreciation the common thread each time. This is no longer a single unusual quarter; it's a trend the filings themselves have never once connected across periods, leaving a reader to track it manually the way this site's own quarter-to-quarter coverage has had to.

This filing has no notes-on-financial-results text disclosed beyond a pointer to "the scan copy of results" (not available in the source downloaded for this post), so there are no footnote sections to mine this quarter, consistent with every prior quarter in this arc.

Target Valuation Range

DMart traded at roughly Rs. 2,63,563 crore (~$31.8B) market capitalization at this quarter's close (December 30, 2022) - a trailing-twelve-month P/E near 112x, essentially flat versus the prior quarter even as the underlying margin trend kept softening.

No real DCF is possible without a balance sheet. Trailing-twelve-month net income through this quarter (Rs. 426.75 + Rs. 642.89 + Rs. 685.71 + Rs. 589.64 crore = Rs. 2,344.99 crore) implies a trailing P/E near 112x - up slightly from Q2 FY2023's ~123x on a pre-tax-benefit-normalized basis but roughly in the same range this multiple has held since Q1 FY2023. The EV/Revenue read below is the cheapest in over a year of this site's coverage - the valuation has genuinely settled into a lower band than the 200x-trailing-P/E extremes of late 2021, but three straight quarters of margin compression, all traceable to real depreciation growth rather than a one-off, argues against paying up for a re-acceleration until a quarter actually shows one.