 "DMart")
Shares of Avenue Supermarts, which owns and operates DMart store, jumped 3 per cent on BSE to hit a fresh 52-week high of Rs 4,299 in Friday’s intra-day trade.
The stock of the food and grocery retailer was trading higher for the third straight day, surging 7 per cent in this period after CLSA initiated coverage with a BUY rating on the stock and a target price of Rs 5107.
The brokerage believes investor concerns around competition from quick commerce and vertical-based players are valid but still factored in the stock price.
The stock is trading at its highest level since November 2022. It had hit a record high of Rs 5,900 on October 18, 2021.
DMart ended December quarter (Q3FY24) with a revenue growth of 17.2 per cent as compared to the corresponding quarter of last year.
The management had said contribution from General Merchandise and Apparel has stabilised and trends are encouraging post Diwali.
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This time the festive season sales were lower than expected in Non-FMCG. Within FMCG, agri-staples (ex-edible oil) are going through significantly high inflation, it said ath the time.
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.
DMart is a discount retailer with the lowest operating costs, which have driven the lowest consumer prices, in turn leading to high sales velocity and better scale, further reducing costs - a virtuous loop that allows DMart to gain market share in a price-sensitive market, as per CLSA.
DMart is rapidly scaling its private-label assortment, which the brokerage expects, will drive the next leg of share gains.
“At 53.7x FY26CL EPS, DMart’s forward PE multiple is the one of the highest in our coverage for large-cap, steady-state businesses. However, we believe the long-term opportunity in DMart remains intact, especially with the stock underperforming the broader indices by 45 per cent since it made a peak in November 2021,” it said in its initiating coverage report.
The brokerage added it observed DMart increasing the number of private-label products over the past year as it tied up with more suppliers for manufacturing of exclusive brands.
DMart now has exclusive brands in a wide range of categories from laundry to home cleaners, dishwashing, room fresheners, personal wash, oral care, hair oil, breakfast cereals, desserts, biscuits, snacks, green tea and instant coffee, among others.
Historically DMart has underplayed the private-label opportunity so as not to be seen competing with large suppliers and key brands. However, analysts at CLSA have seen a steady increase in private-label offerings from DMart and believe private labels can be a key differentiator, especially when compared with ecommerce and quick commerce.
The brokerage also sees its older private brands being displayed prominently and going head-to-head with the leading brands in the category. Private brands are offered at a 20-40 per cent discount to known brands despite DMart using high-quality suppliers.
