Shares of Avenue Supermarts, the retail corporation that operates a chain of supermarkets DMart fell over half a percent on June 28 even as Morgan Stanley issued an overweight call on the stock with a target price of Rs 5,123 per share.
The international brokerage highlighted that the competitive environment in the online grocery sector remains robust, exemplified by Amazon Fresh's expansion plans from 60 cities to 130 cities.
In a first-time development, JioMart has overtaken DMart's online service DMart Ready in product discounting strategies.
Meanwhile, Big Basket maintains a lead over DMart Ready in terms of SKU availability. Both JioMart and DMart Ready are experimenting with faster delivery services, indicating a focus on improving customer experience and operational efficiency, Morgan Stanley said.
DMart’s operating performance registered strong growth in FY24 with the rise in volumes, scale-up of stores opened over the past couple of years, and new store additions. Improving operating leverage will continue to support the overall margin for the company over the medium term, according to CRISIL Rating recently.
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Consolidated profitability is expected to remain at similar levels, backed by faster breakeven of stores, superior per-store revenue compared with peers, the stable proportion of non-F&G sales, high inventory turnover as well as maintenance of gross margin at around 15 percent despite an increase in competitive intensity, the rating agency added.
Avenue Supermarts recently opened a new store at Mettupalayam, Coimbatore in Tamil Nadu, taking the total number of DMart stores across the country to 369.
According to Geojit Financial, Avenue Supermarts has strong growth potential given its healthy balance sheet with no debt and strong operational efficiency. "Strong store additions will aid future revenue growth while moderating inflation will improve discretionary demand and margins," it said in an earlier report.
At 9:17 am, Dmart shares were trading 0.7 percent lower at Rs 4,874.25 on the National Stock Exchange (NSE). So far this year, DMart has outperformed the market by surging nearly 20 percent, as compared to 10 percent rise in the benchmark Nifty 50.
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