Margin Expansion, Finally - But Not From Cost Control
This filing covers the quarter ended March 31, 2024 - Q4 of Avenue Supermarts' FY2024, also filed alongside the full-year FY2024 audited results. Revenue grew 20.13% year-on-year to Rs. 12,726.55 crore. Net income grew 22.40% to Rs. 563.14 crore, and Operating Income (reconstructed) grew 21.25% to Rs. 776.62 crore - the first quarter since Q4 FY2022 where operating income genuinely grew faster than revenue, ending the seven-quarter run where it never quite did (even Q3 FY2024's near-flat quarter fell just short).
The interesting part is where the expansion came from. Every major opex line grew faster than revenue this quarter: Employee Benefit Expense +29.12% to Rs. 241.01 crore, D&A +24.87% to Rs. 204.89 crore, and Other Expenses +23.51% to Rs. 654.74 crore. None of that is what expanded the margin. Net cost of goods (Purchases of Stock-in-Trade, net of the change in inventory) grew 19.56% - just below revenue's 20.13% - to Rs. 10,887.16 crore, and since that line is roughly 85% of revenue, even that small gap was enough to offset all three faster-growing opex lines combined. Gross margin (revenue less net procurement cost) improved to 14.45% from 14.05% a year ago. This looks like a merchandising/procurement story, not a cost-discipline one - and it's the opposite of what a reader would guess from the opex lines alone.
The Prescription
Seven quarters of margin compression ending on a procurement-driven gross-margin improvement, while every operating cost line kept accelerating, is a genuinely mixed signal - not the clean "problem solved" story the headline operating-income growth suggests. Employee costs growing at 29% is now the fastest pace in this arc, and if that continues while gross margin gains prove to be a one-quarter procurement win (a favorable vendor negotiation, inventory timing, a mix shift toward higher-margin categories) rather than a repeatable structural gain, the underlying compression trend could resume immediately next quarter. The company's own presentation doesn't distinguish "structural gross-margin improvement" from "one good procurement quarter" - that's the single most useful disclosure that's still missing here.
Key Financial Metrics
Quarter and year ended March 31, 2024 (consolidated), compared against Q4 FY2023 (quarter ended March 31, 2023)
FX: INR 83.36 = USD 1 (March 31, 2024 close).
| Metric | Q4 FY2024 (INR) | Q4 FY2024 (USD) | YoY Change | Note |
|---|---|---|---|---|
| Net Revenue (revenue from operations) | Rs. 12,726.55 crore | ~$1,526.7M | +20.13% | |
| Total Income (incl. other income) | Rs. 12,764.42 crore | ~$1,531.2M | +20.13% | |
| Total Expenses | Rs. 12,001.22 crore | ~$1,439.7M | +19.99% | Grew (very slightly) slower than revenue for the first time in seven quarters |
| Operating Income (EBIT, reconstructed) | Rs. 776.62 crore | ~$93.2M | +21.25% | 6.10% margin, up from 6.05% a year ago |
| Adjusted EBITDA» (reconstructed) | Rs. 981.51 crore | ~$117.7M | +21.99% | 7.71% margin, up from 7.59% |
| Finance Costs | Rs. 13.42 crore | ~$1.6M | -13.60% | |
| Profit Before Tax | Rs. 763.20 crore | ~$91.6M | +22.12% | |
| Tax Expense | Rs. 200.06 crore | ~$24.0M | +21.35% | Effective rate 26.21%, roughly flat vs 26.38% a year ago |
| Net Income | Rs. 563.14 crore | ~$67.6M | +22.40% | 4.42% net margin, down slightly from 4.34% - offset below is EPS dilution, see note |
| Basic / Diluted EPS | Rs. 8.66 / Rs. 8.64 | ~$0.104 / ~$0.104 | +21.97% (basic) |
Operating Income and Adjusted EBITDA are reconstructed as PBT + Finance Costs [+ D&A for EBITDA]. No balance sheet or cash flow statement is disclosed as a separable quarter figure in this filing type. Paid-up equity share capital held flat at Rs. 650.73 crore (~65.07 crore shares).
Net margin (4.42%) is actually down slightly year-on-year (4.34%) even with operating income up 21.25%, because this quarter's revenue base is larger - a reminder that a margin ratio comparison and an absolute-growth comparison can point in slightly different directions in the same quarter without contradicting each other.
Beyond the Usual
The Real Driver: Gross Margin, Not Cost Control
Net procurement cost (Purchases of Stock-in-Trade, net of the change in inventory) grew 19.56% year-on-year to Rs. 10,887.16 crore, below revenue's 20.13% growth - a genuine gross-margin improvement (14.45% vs 14.05% a year ago). Since this line is roughly 85% of revenue, that gap alone offset all three opex lines (employee, D&A, other expenses) growing faster than revenue this quarter.
This filing carries no notes-on-financial-results text beyond the standard board-approval boilerplate, so there is no company commentary distinguishing a structural procurement improvement from a one-off - the reconstruction above is our own, from the filed P&L lines, not a disclosed explanation.
Target Valuation Range
DMart's stock closed this quarter at Rs. 4,525.60, up 10.85% from Q3 FY2024's Rs. 4,082.65 close - a second straight quarter of price gains, now genuinely tracking a quarter of real margin improvement rather than running ahead of the fundamentals.
DMart traded at roughly Rs. 2,94,494 crore (~$35.3B) market capitalization at this quarter's close (March 31, 2024) - a trailing-twelve-month P/E near 116x, up from Q3 FY2024's ~109x on both a higher price and faster TTM earnings growth.
| Item | Value |
|---|---|
| Share price (March 31, 2024 close) | Rs. 4,525.60 |
| Shares outstanding | ~65.07 crore |
| Market capitalization | ~Rs. 2,94,494 crore (~$35.3B) |
| Total liabilities | Not disclosed (no balance sheet in this filing) |
| Less: cash and equivalents | Not disclosed |
| Enterprise value | Not computable without a balance sheet - market cap used as a proxy below |
No real DCF is possible without a balance sheet. Trailing-twelve-month net income through this quarter - Rs. 563.14 crore (this quarter) plus Q3 FY2024 (Rs. 690.41 crore), Q2 FY2024 (Rs. 623.35 crore), and Q1 FY2024 (Rs. 658.71 crore) - totals Rs. 2,535.61 crore, implying a trailing P/E near 116.1x.
| Metric | This quarter (Q4 FY2024) | Prior quarter (Q3 FY2024) |
|---|---|---|
| TTM Net Income | Rs. 2,535.61 crore | Rs. 2,432.57 crore |
| Trailing P/E | ~116x | ~109x |
| TTM Revenue | ~Rs. 50,788.83 crore | ~Rs. 48,656.39 crore |
| EV/Revenue (market cap as EV proxy) | ~5.8x | ~5.5x |
That multiple is now genuinely backed by two consecutive quarters of real, not merely resilient, margin improvement - but it also leaves very little room for the next quarter's procurement gains to prove to be a one-off rather than structural before the market re-prices the stock down to reflect that.
| Scenario | Key assumption | Implied trailing P/E | Implied value |
|---|---|---|---|
| Current (period-end close) | Actual March 31, 2024 close | ~116x | Rs. 4,525.60/share (~Rs. 2,94,494 crore, ~$35.3B) |
| Bear | This quarter's gross-margin gain proves a one-off procurement win, not structural, and the multiple de-rates back toward pre-expansion levels | ~95x | ~Rs. 3,702/share (~Rs. 2,40,883 crore, ~$28.9B) |
| Base | Multiple holds near where it closed, consistent with the trailing P/E above | ~116x | ~Rs. 4,520/share (~Rs. 2,94,131 crore, ~$35.3B) |
| Bull | The gross-margin improvement proves structural and the market re-rates further on a genuine margin-expansion story | ~140x | ~Rs. 5,456/share (~Rs. 3,54,985 crore, ~$42.6B) |