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Updated March 26th, 2024 at 13:31 IST

Avenue Supermarts surges 6% in two sessions as CLSA initiates coverage

CLSA, a leading global brokerage firm, has initiated coverage on Avenue Supermarts, the parent company of DMart, with a "BUY" rating.

Reported by: Abhishek Vasudev
DMart
DMart added 5 stores taking the total count to 341 operating stores | Image:DMart
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DMart shares rise: Shares of Avenue Supermarts, which operates departmental stores under the brand name DMart, rose as much as 6 per cent in last two sessions to hit 52-week high of Rs 4,237 on the BSE after CLSA initiated coverage on the stock with a buy rating.

CLSA, a leading global brokerage firm, has initiated coverage on Avenue Supermarts, the parent company of DMart, with a "BUY" rating. The move comes as the brokerage firm sees major growth potential for the discount retailer, driven by its low operating costs and expanding private-label assortment.

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DMart, known for its everyday low cost, everyday low price model (ELDC/ELDP), has consistently offered the lowest consumer prices in the market. This strategy has not only attracted price-sensitive consumers but has also led to high sales velocity and improved scale, allowing DMart to gain market share steadily.

One of the key factors driving CLSA's bullish stance on Avenue Supermarts is the company's rapid expansion of its private-label assortment. Private labels, which are offered at a 20-40 per cent discount to popular brands, are seen as a major growth driver for DMart. Despite historically underplaying the private-label opportunity, DMart has been steadily increasing its offerings, which CLSA believes will be a key differentiator, particularly in comparison to ecommerce and quick commerce.

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Furthermore, CLSA highlights DMart's position in India's food and grocery market, which is estimated to be over $500 billion. Despite being one of the leaders in this market, DMart's share currently stands at less than 1 per cent, leaving ample room for growth. CLSA projects that DMart's share could rise to 5 per cent as the company expands its footprint and increases its store count over the next few years.

CLSA's target price for Avenue Supermarts is set at Rs 5,107, representing 23 per cent upside from Thursday’s closing price. The target price is based on an equal-weighted blend of discounted cash flow (DCF) analysis and a one-year median price-to-earnings (PE) multiple of 67 times. This valuation method considers DMart's long-term average multiple of 74 times (excluding Covid rerating) and positions it favourably compared to the slower-growing coverage average.

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However, CLSA cautions that a slower-than-anticipated shift from unorganised to organised retail could pose a risk to its outlook. Nonetheless, the brokerage firm remains optimistic about Avenue Supermarts' prospects, citing its strong positioning in the market and its ability to capture a larger share of India's growing urban food and grocery segment.
 

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Published March 22nd, 2024 at 14:19 IST

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