DMart's Aggressive 15-20% Store Expansion Delays Cash Flow: CLSA Sees Walmart-Like Future Gains

Indian retail giant DMart is prioritising long-term growth through a massive store expansion strategy that is expected to delay its ability to generate significant cash in the short term, according to the CLSA India Weekender - ALL THINGS INDIA report.

The report noted that DMart is in a phase of aggressive growth, with plans to add 15-20 per cent annually. This strategy is common for large retailers during their early years of expansion. "Historically, free cash flow in the early years of expansion is negative due to rapid store additions," the research stated.

Management for the retailer currently has visibility for 2,200 stores. Given the high volume of upcoming projects, the company's near-term free cash flow is likely to remain negative or minimal. However, global examples like Walmart and Costco show that as store expansion slows and becomes routine, a company's cash balance starts to turn significantly positive.

To compete with other players, DMart is expanding its private-label brands. These products are priced 40-50 per cent lower than famous brands, and sometimes cost only one-third as much. While many people are starting to use quick commerce apps for fast deliveries, CLSA expects these services to account for less than 20 per cent of urban consumption by 2035. This creates significant demand for physical stores like DMart to meet.

In the digital space, the report tracks weekly usage of shopping apps. For the week ending December 8, JioMart saw the highest increase in weekly active users, followed by the delivery app Blinkit. While most major e-commerce players saw a drop in users that week, the app Meesho grew its user base to 169.8 million.

The report also highlights the competition in food and grocery delivery. Zomato and Swiggy remain the primary competitors in food delivery, while Blinkit, Zepto, and Swiggy Instamart compete in the quick commerce category. Despite this digital growth, traditional retailers like DMart continue to focus on expanding their physical presence to secure future profits.