Why DMart’s 90.6x PE ratio fails to explain its true valuation?

SYNOPSIS: This article explains why DMart’s seemingly expensive 90.6x P/E does not fully reflect its true valuation, as profits are temporarily suppressed by aggressive store expansion and asset ownership. Despite this, the company has delivered a 24 percent revenue CAGR, 22 percent profit CAGR, operates 442 stores, and maintains a strong ROCE of ~18 percent, highlighting the need to look beyond earnings multiples to assess long-term value.

DMart’s valuation often appears expensive at first glance, especially when judged only by traditional metrics like the price-to-earnings ratio. However, market valuations are influenced by more than just current profits, including business quality, growth visibility, and long-term sustainability. For companies with strong fundamentals and predictable cash flows, headline valuation multiples alone may not fully reflect their true worth.

Avenue Supermarts Limited, with a market capitalization of Rs. 2,47,603.93 crore, closed at Rs. 3,805 per equity share, down by 0.61 percent from its previous day’s close price of Rs. 3826.80 per equity share.

About the Company

Avenue Supermarts Limited was incorporated in 2000. The company is headquartered in Mumbai, India. It operates DMart, one of India’s leading supermarket chains, engaged in organized retail across food and non-food categories. Its offerings include groceries, staples, fresh produce, personal and home care items, general merchandise, and apparel, along with online grocery sales through DMart Ready.

Financial Outlook

The company reported revenue in Q2FY26 stood at Rs. 16,676 crore, registering a strong YoY growth of 15.5 percent compared with Rs. 14,444 crore in Q2FY25, reflecting healthy underlying demand. On a QoQ basis, revenue grew 1.9 percent from Rs. 16,360 crore in Q1FY26, indicating stable sequential momentum with modest improvement over the previous quarter.

On profitability, EBITDA came in at Rs. 1,214 crore, up 11.0 percent YoY from Rs. 1,094 crore, but declined 6.5 percent QoQ versus Rs. 1,299 crore, pointing to some margin pressure sequentially. Profit after tax was Rs. 685 crore, marking a 4.0 percent YoY increase over Rs. 659 crore, while falling 11.4 percent QoQ from Rs. 773 crore, suggesting higher costs or normalization effects impacting near-term earnings despite solid annual growth.

Over the past three years, the company has demonstrated strong growth, achieving a revenue CAGR of 24 percent, a profit CAGR of 22 percent, reflecting its operational performance and market confidence.

A return on equity (ROE) of about 13.4 percent and a return on capital employed (ROCE) of about 18 percent, and debt to equity ratio at 0.07 demonstrate the company’s financial position. The stock is currently trading at a P/E of 90.6x higher as compared to industry P/E of 44.1x.

Why Should DMart Not Be Valued Only on the P/E Ratio?

1. Expansion Costs

DMart follows a store-led expansion strategy that requires heavy upfront investment in land, buildings, warehouses, and backend infrastructure. As of December 14, 2025, the company’s total number of stores stands at 442. These costs increase depreciation and reduce reported profits in the short term, making the P/E ratio appear high. However, this does not reflect the long-term earning potential of new stores once they stabilise.

2. Cash Flow Matters

Despite modest reported earnings, DMart consistently generates strong cash flow from operations. Fast inventory turnover and tight working-capital control ensure that sales quickly convert into cash. Since P/E focuses only on net profit, it fails to capture this core strength of DMart’s business model. 

3. Store-Level Economics Drive Long-Term Value

DMart’s real strength lies in how efficiently each store performs. High sales per square foot and a relatively short store payback period show strong unit economics. These factors determine long-term value creation, while EPS can fluctuate due to expansion and accounting charges.

4. Low-Margin, High-Efficiency Model 

DMart operates on deliberately low margins to offer everyday low prices, relying on high volumes and rapid inventory movement. This model delivers sustainable returns through efficiency and scale, even though margins and therefore earnings remain modest. A high P/E in this case reflects the model, not overvaluation.

5. Asset Ownership Improves Long-Term Economics

DMart owns a significant portion of its store properties, which lowers rental costs over time and improves operating leverage. This strengthens cash flows and balance-sheet stability, benefits that are not visible when valuation is judged only on earnings multiples.

6. P/E Gives False Signals During Growth Phases

During periods of rapid expansion, profits lag behind capacity creation, pushing the P/E ratio higher and creating the impression of overvaluation. Evaluating DMart using cash flows, capital efficiency, and store productivity provides a more accurate picture of its true value.

Conclusion

DMart is a capital-intensive, cash-generating retail business where long-term value is driven by store economics, inventory efficiency, and ROCE rather than short-term earnings. Valuing the company purely on the P/E ratio oversimplifies the business and can lead to incorrect investment conclusions.

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