Avenue Supermarts: 'Buy' Rating from CLSA, 26% Upside

Avenue Supermarts’ share price shot up by 4.4% on Thursday, reaching a 52-week peak of Rs 4,238 on the NSE. This surge followed a new buy rating from Hong Kong-based brokerage CLSA, setting a price target of Rs 5,107 for the DMart operator. Over the past four sessions, the stock has steadily climbed, marking a total gain of over 8%.

CLSA, in its brokerage note, spotlighted the success of DMart's private labels, suggesting they will further boost market share. The company, renowned for its basic home and personal products, currently runs 341 stores but is anticipated to triple this number by fiscal year 2034 as it expands into new states and strengthens its presence in existing ones.

The brokerage firm underscored a significant market opportunity, estimating a potential market of over $500 billion, with less than 5% organized. DMart holds a competitive edge in providing the lowest consumer prices due to efficient operating costs. Moreover, CLSA predicts DMart's private labels will be a key driver of future stock gains.

Founded by Radhakishan Damani in 2002, Avenue Supermarts operates under the D-Mart brand, serving markets across several Indian states.

CLSA forecasts a substantial increase in DMart stores by fiscal year 2034, potentially surpassing 7,000 stores in urban India, mirroring the store-to-population density ratio of Walmart in the U.S. DMart's low operating costs translate into lower consumer prices, driving high sales and scale, thus enabling market share growth in a price-sensitive market. Rapid expansion of its private-label range is expected to further enhance share gains.

DMart operates on an everyday low-cost, everyday low-price model, making it one of the world's lowest-cost retailers. Its competitive pricing, coupled with efficient execution, has enabled it to gain market share in modern grocery retail from 2014 to 2023.

In the past, DMart has downplayed its private-label offerings to avoid competition with major suppliers and brands.

CLSA said.

"However, we have seen a steady increase in DMart's private-label offerings and believe private labels can be a key differentiator, especially when compared with ecommerce and quick commerce. Private brands are offered at a 20–40% discount to popular brands,"

"A slower-than-anticipated shift from unorganised to organised retail is a risk to our view",

In the third quarter of fiscal year 2023-24, Avenue Supermarts reported a consolidated net profit of Rs 690.41 crore, up by 17.09% from the same period last year. Consolidated revenue from operations also saw a notable increase, rising by 17.31% year-on-year to Rs 13,572.47 crore.

Out of 26 analysts tracking the stock, 11 recommend buying, six suggest holding, and nine advise selling. Despite closing nearly unchanged on Wednesday, Avenue Supermarts' shares have seen a 20% gain over the past 12 months. Based on the financial year 2025 price-to-earnings ratio, the stock is trading at 77.75 times, lower than the five-year average P/E multiple of 104.3 times.