Avenue Supermarts’ better-than-expected performance in Q1 of FY25 has encouraged analysts to maintain the stock in their shopping carts with positive recommendations.
ICICI Securities, which has an ‘add’ on the stock, said the retailer’s revenue, operating profit and net profit were led by healthy same-store sales growth. Its general merchandise and apparel segment also continued to improve.
The retail space rose 14 per cent to 15.4 million sq ft, while sales per sq ft saw an improvement of 5 per cent to ₹35,751. Same-store sales growth was maintained at 6 per cent.
DMart Ready, the outlets where customers can pick up items they have ordered online, saw a 27 per cent annual revenue growth.
The average size of the new stores it added in the quarter were around 50,000 sq ft, with most of the new stores being in its top four markets of Maharashtra, Gujarat, Telangana and Andhra Pradesh.
Analysts’ view
JP Morgan maintained its overweight view on the retailer with a price target of ₹5,400 per share. CLSA maintained the stock at ‘outperform’ with the price target at ₹5,535 a share, while BofA maintained the ‘buy’ recommendation with a price target of ₹5,465.
“DMart’s long-term growth story remains intact with 1,500-plus store potential in duopoly market,” said Prabhudas Lilladher, which has an ‘accumulate‘ recommendation on the stock with target price of ₹5,104.
It said it expected the company to add 45 stores in the current fiscal compared with 41 stores last year with a focus on tier-2, and -3 cities. It had the potential to accelerate store openings in the coming years.
Cautionary note
A slow scale-up in DMart Ready format compared with quick commerce players could be a headwind in the long term, the broker added.
Nuvama Research had a more cautious commentary on the retailer. It pointed out that store productivity was still below pre-Covid levels.
In a note, Axis Securities said that though there were initial signs of improvement, “we believe Dmart is likely to take time to improve its overall store matrix in the near term as demand environment continues to remain weak in the discretionary category and is expected to recover only in H2-FY25 and onwards”.
It added larger and newer stores have higher gestation periods, thus impacting the overall profitability in the near term, while increasing competition from organised players such as Reliance, Star Bazaar, Zudio and online players Zepto, Blinkit, and Instamart as they penetrated in smaller towns and the recent run-up in stock price would limit its upside potential in the near term.