Breezing through COVID-19 storm! This retail stock owned by Radhakishan Damani can be a multibagger

A K Prabhakar, Head, Research, IDBI Capital in an interview to Moneycontrol placed Avenue Supermart in the category of multibaggers of the future. The company had been growing at 25 percent in the last few years, he said.

“We think the company is pulling consumers away from unorganised stores due to high discounting and now, delivery to home on the minimum charge would help the company grow in the next few years around those levels,” he said.

DMart is focused on value retailing and offers a wide range of fast-moving consumer products, general merchandise, and apparel.

Currently, the company has 196 DMart stores and expects to open 30 stores every year through its cluster approach.

It offers significant discounts compared to e-commerce, modern trade (~6%) and general trade (~18%), which would drive revenue growth, say experts.

“The DMart chain offers a considerable amount of discount when compared to e-commerce platforms. The operating margin is higher compared to its peers due to the company’s low-cost structure,” Angel Broking said in a note.

The brokerage firm expects DMart to report consolidated revenue/PAT CAGR of 18% and 26%, respectively, over FY2019-22E. It has an accumulate rating on the stock, which is also in top picks category with a target price of Rs 2,395.

Consistent growth and profitability

One of the big factors that make the stock a good buy on dips is that it has delivered consistent performance over the years, which is a positive sign.

At a time when most of the midcaps are reeling under pressure, DMart stands out with an outperformance of over 20 percent, so far, in 2020.

Experts say that the coronavirus outbreak impact will be minimal on Avenue Supermart due to its non-discretionary nature of the business and a capital-efficient business model.

Over the years, DMart has been able to maintain consistent profitability and remains an exceptional performer in its peer group.

“Given the robust store operating metrics, DMart has progressively enhanced its return ratios despite being CAPEX intensive. We expect the impact of the virus to be limited owing to the non-discretionary nature of the business,” ICICIDirect said in a research note.

“In a bid to reduce promoter stake to 75%, the company had successfully concluded qualified institutional placement (QIP) placement worth Rs 4,100 crore. Incremental cash-flow infusion in the company is expected to significantly shore up store addition pace with foray into newer geographies. DMart has a capital-efficient business model generating superior RoCE of 23% and fixed asset turnover ratio of 4.1x,” it said.

The infusion of funds would provide Avenue Supermarts the ammunition to enhance its store expansion pace, resulting in higher revenue and profitability.

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