DMART The Margin-Compression Streak Hits a Fourth Straight Quarter

A Fourth Straight Quarter of Expenses Outgrowing Revenue

This filing covers the quarter ended March 31, 2023 - Q4 of Avenue Supermarts' FY2023, and also the annual results for the full fiscal year. Revenue grew 20.57% year-on-year to Rs. 10,594.11 crore. Net income grew 7.81% to Rs. 460.10 crore - the fourth consecutive quarter where total expenses (+21.83% to Rs. 10,002.21 crore) genuinely outgrew revenue, continuing the pattern first flagged in Q4 FY2022 and tracked through Q1, Q2, and Q3 FY2023.

The driver has shifted, though. In the prior three quarters, Depreciation and Amortisation was the single fastest-growing major line. This quarter, D&A grew a comparatively modest 12.13% to Rs. 164.08 crore and Employee Benefit Expense grew 15.72% to Rs. 186.64 crore - both slower than revenue growth. The line that actually outgrew revenue this quarter is Other Expenses, up 28.12% to Rs. 530.13 crore, the fastest-growing major cost line in this arc since it began. Operating Income (reconstructed) grew just 2.39% to Rs. 640.50 crore, and operating margin fell to 6.05% from 7.12% a year ago.

One genuine offset: the effective tax rate fell to 26.38% from 29.91% a year ago (the rate hike that had itself compounded Q4 FY2022's margin squeeze), which is most of the reason net income still grew at all against a nearly-flat operating income.

The Prescription

Four straight quarters into a margin-compression trend, the story keeps changing shape rather than resolving - depreciation-led for three quarters, then Other Expenses-led this one - which makes it harder to write off as a single identifiable and temporary cause. Management's public disclosures still don't connect the dots across quarters or name what's actually inside "Other Expenses" (rent, store operating costs, and marketing are the likely suspects for a store-network business, but none are broken out in this filing). What should stop: treating each quarter's compression as a fresh, unexplained surprise. What's working: the tax-rate normalization is a real, disclosed, non-recurring-adjacent tailwind that's genuinely cushioning the operating-line weakness - that's worth calling out as a distinct, temporary offset rather than folding it into "profit grew."

Key Financial Metrics

Quarter ended March 31, 2023 (consolidated), compared against Q4 FY2022 (quarter ended March 31, 2022)

FX: INR 82.10 = USD 1 (March 30, 2023 month-end close).

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. 164.08 crore, +12.13% YoY) on top of that. No balance sheet or cash flow statement is disclosed as a separable quarter figure in this filing type. Paid-up equity share capital was Rs. 648.26 crore (~64.83 crore shares of face value Rs. 10).

Employee Benefit Expense (+15.72%) and Depreciation (+12.13%) both grew slower than revenue this quarter - a break from the prior three quarters where depreciation was the culprit. The new fastest-growing line is Other Expenses (+28.12% to Rs. 530.13 crore), which this bare SEBI Reg 33 filing doesn't itemize further.

Beyond the Usual

Other Expenses Outgrowing Revenue Without Any Itemization

Other Expenses grew 28.12% to Rs. 530.13 crore this quarter - the fastest-growing major cost line and the direct cause of the fourth straight quarter of margin compression - yet the filing's bare SEBI Reg 33 format never itemizes what's actually inside this line. Rent, store operating costs, and marketing are the likely candidates for a store-network retailer, but none are broken out, leaving a reader unable to tell whether this is transient or structural without the underlying schedule.

Target Valuation Range

DMart's stock closed this quarter at Rs. 3,401.05 - down from Q3 FY2023's Rs. 4,068.75 close, a roughly 16.4% pullback over the quarter, continuing the same narrow-to-softening band the market has traded the stock in since late 2021 rather than either the COVID-recovery euphoria or a fresh re-rating.

DMart traded at roughly Rs. 2,20,476 crore (~$26.9B) market capitalization at this quarter's close (March 30, 2023) - a trailing-twelve-month P/E near 93x, the cheapest multiple in this site's coverage of the company to date, as the price pullback outpaced the (still-growing, if more slowly) earnings base.

No real DCF is possible without a balance sheet. Trailing-twelve-month net income through this quarter - this quarter's Rs. 460.10 crore plus Q3 (Rs. 589.64 crore), Q2 (Rs. 685.71 crore), and Q1 FY2023 (Rs. 642.89 crore) - totals Rs. 2,378.34 crore, implying a trailing P/E near 92.7x - down from Q3 FY2023's ~112x entirely on the price pullback, since TTM earnings actually grew over the same window.

The four-quarter margin-compression trend, still unresolved and now driven by an unexplained "Other Expenses" line, is the more important story than the cheaper multiple - a compressing operating margin at any multiple is a fundamentals problem, not a valuation opportunity, until the filings actually explain what's inside that cost line.