Radhakishan Damani’s Avenue Supermarts (DMart), the parent company of DMart, has caught the attention of brokerage firm Anand Rathi. It has initiated coverage on the stock with a Hold rating. The firm has set a 12-month target price of Rs 4,254 per share, indicating a cautious yet optimistic stance on the retail giant’s future. The target implies 7% upside for the share price.
As per 12:30 pm on March 26, the share price of Avenue Supermarts is trading at Rs 3,960.43, down 1% intra-day. With a market capitalisation of Rs 2.5 lakh crore, the company remains a key player in India’s growing organised retail space.
Let’s take a look at the key takeaways from Anand Rathi on why they have a Hold rating on the stock
Anand Rathi on Avenue Supermarts: DMart’s expansion plans
As per the brokerage report, one of the biggest strengths of the company is its store expansion strategy. Over FY19-24, DMart added 189 stores, averaging 38 new locations per year. The company now plans to scale this up to an average of 45 stores annually over the next three years.
“With the capacity to add 40-50 stores each year, DMart remains well-positioned to capture market share,” added the Anand Rathi report.
Furthermore, the brokerage expects Avenue Supermarts to achieve an 18.2% revenue CAGR over FY24-27, primarily driven by store additions and steady same-store sales growth (SSSG) of 7 to 8% annually.
Anand Rathi on Avenue Supermarts: D’mart offer plans
The brokerage further in its report added that Avenue Supermarts largely hinges on its Every Day Low Cost (EDLC) and Every Day Low Price (EDLP) strategy, which enables it to pass on cost savings to customers. This approach, in a way, driven by bulk purchasing, quick supplier payments, store ownership, and optimised layouts, has helped the company to maintain the consistency and also maintained high foot traffic and growth in the sales.
As per the brokerage report, staples contribute nearly 77% of DMart’s revenue, making it a stable, high-frequency business.
Anand Rathi on Avenue Supermarts: Valuation and profitability
At the current market price (CMP), Avenue Supermart is trading at 72.2x FY26E P/E and 59.7x FY27E P/E. However, the brokerage believes this is justified given its cash flows, cost-efficient operations, and expansion strategy.
“We expect DMart to report 18.5% EBITDA CAGR and 18.7% PAT CAGR over FY24-27, supported by operating leverage and supply-chain efficiencies,” noted the brokerage in its report.
Anand Rathi on Avenue Supermarts: Key risks
The brokerage also noted certain risks that could impact its future trajectory. According to the brokerage, slower-than-expected store additions due to real estate or regulatory constraints could hinder expansion plans.
Additionally, the rising competition from quick commerce players like Blinkit and Zepto could pressure same store sales growth (SSSG) and lead to higher discounting.