Shares of Avenue Supermarts (DMart) hit a two-year high of Rs 5,300, gaining 4 per cent on the BSE in Thursday’s intra-day trade in an otherwise weak market on hopes of improvement in discretionary demand and margins. In comparison, the BSE Sensex was down 0.22 per cent at 82,172 at 02:43 pm.
Currently, DMart is trading at its highest level since October 2021. It had hit a record high of Rs 5,899.90 on October 18, 2021.
DMart is a national supermarket chain, with a focus on value-retailing. The company offers a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories. The Company offers its products under various categories, such as grocery and staples, dairy and frozen, fruits and vegetables, home and personal care, bed and bath, crockery, footwear, toys and games, kids’ apparel, apparel for men & women and daily essentials.
With a mission to be the lowest-priced retailer in its area of operation, DMart has grown steadily over the years, and operates 375 stores in 10 States, 1 Union Territory and NCR.
DMart has strong growth potential given its healthy balance sheet with no debt and strong operational efficiency. Strong store additions will aid future revenue growth, while lower inflation will improve discretionary demand and margins, according to analysts at Geojit Financial Services.
In the April to June quarter (Q1FY25), DMart reported strong revenue growth of 18.4 per cent year-on-year (YoY), aided by strong store additions. Revenue per store has improved by 4.3 per cent Y-o-Y. DMart opened 6 new stores in Q1FY25, 41 new stores in FY24 and 131 stores in the last 3 years, which, along with a likely improvement in demand due to lower inflation, will aid future growth, according to analysts.
However, earnings before interest, tax, depreciation and amortisation (EBITDA) margin were maintained at 8.9 per cent due to an increase in employee costs and other expenses. The deterioration in the product mix due to higher inflation was the main reason for the margin pressure in the past several quarters. Now, the discretionary mix is expected to improve further, aided by lower inflation, which will improve margins in the coming quarters, the brokerage firm said in the Q1 result update with a target price (TP) of Rs 5,310 per share.
Analysts at Centrum Broking have ADD rating on the stock with TP Rs 5,428 (implying 75x FY26E EPS). Though business indicators remain healthy, the company aims to remain relevant to customers by delivering value through operational efficiencies, quality products and competitive prices. Management retained its store opening target of 45 stores in FY25, and believes it has steadily progressed on its ecommerce model and has no plans to push into the Q-Com segment.
“We reckon DMart growth story revolves around, (1) healthy SSSG, (2) store expansion, and (3) offering great value through EDLP driving store footfall. We note, its cluster based expansion strategy focuses on store size optimisation, and improvement sale/sq ft,” the brokerage firm said.
Moreover the disruption created by Q-Com players restricted to metros not impacting DMart’s footfall as the consumer preferred value over convenience. Further we highlight DMart’s cost led approach remains key driver for value seeking consumers, yet Q-Com players’ focus on customers who seek time/convenience and not necessarily price sensitive, Centrum Broking said.
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