Morgan Stanley Recommends Buying DMart, Sets Target Price

Avenue Supermart shares, the retail corporation that operates the DMart supermarket chain, declined by over half a percent on June 28. This occurred despite Morgan Stanley issuing an Overweight rating on the stock with a target price of ₹5,123 per share.

At 9:17 am IST, DMart share price were trading 0.7% lower at ₹4,874.25 on the National Stock Exchange (NSE). Despite this dip, DMart has outperformed the market so far this year, rising nearly 20% compared to a 10% increase in the benchmark Nifty 50. 

The international brokerage noted that the competitive landscape in the online grocery sector remains strong, citing Amazon Fresh's plans to expand from 60 cities to 130 cities. For the first time, JioMart has surpassed DMart's online service, DMart Ready, in terms of product discounting strategies.

Meanwhile, Big Basket continues to lead over DMart Ready in terms of SKU availability. Both JioMart and DMart Ready are experimenting with faster delivery services, highlighting their focus on enhancing customer experience and operational efficiency, according to Morgan Stanley.

DMart’s operating performance showed robust growth in FY24, driven by increased volumes, the expansion of stores opened in recent years, and the addition of new stores. According to a recent report by CRISIL Rating, improving operating leverage is expected to continue supporting the company's overall margin over the medium term.

The rating agency added that consolidated profitability is anticipated to remain steady, supported by faster breakeven of stores, superior per-store revenue compared to peers, a stable proportion of non-F&G sales, high inventory turnover, and the maintenance of a gross margin around 15% despite increased competitive intensity.

Avenue Supermarts recently inaugurated a new store in Mettupalayam, Coimbatore, Tamil Nadu, bringing the total number of DMart stores across the country to 369.

Geojit Financial highlighted that Avenue Supermarts has strong growth potential, citing its healthy balance sheet with no debt and strong operational efficiency. "Significant store additions will drive future revenue growth, while moderating inflation will enhance discretionary demand and margins," the report stated.

Avenue Supermarts Limited (ASL), operating under the brand name DMart, owns and manages a chain of hypermarkets and supermarkets. The company provides a variety of products including food, kitchenware, garments, footwear, toys, games, bath linen, stationery, groceries, household items, and electronics.