CLSA super bullish on this retail stock, raises target price further; shares at fresh 52-week peak

Avenue Supermarts share price NSE BSE: Shares of Avenue Supermarts, operating DMart supermarket chain, galloped to a new 52-week high for the second day in a row in Thursday’s session (March 28) after the global brokerage CLSA maintained its buy rating and increased target on the stock in a week to Rs 5,307 from the earlier suggested target of Rs 5,107. This new target implies an upside potential of over 20 per cent.

At 9:37 am, shares of the company traded higher by 1.93 per cent at Rs 4,504.2 after marking a fresh 52-week high of Rs 4,562.6, up over 3 per cent.

Since the global brokerage initiated coverage on the stock last week, the stock has risen over 12 per cent.

The Hong Kong-based brokerage maintained that store additions and inflation are picking up. DMart in Q4 added 16 stores, three ahead of its forecast. Further, it stated that store addition remains a key point to track for investors. Besides, the increasing price of palm oil and crude oil should offer the retail company some room for pricing going forward in the upcoming fiscal year 2025.

On Tuesday (March 26), the company, in an exchange filing, stated that it opened three new stores, two in Telangana and one in Gujarat, with the total number of stores now at 357.

Macquarie is also bullish on Avenue Supermarts and has maintained its ‘outperform’ view, with the target raised to Rs 4,500 from the previous Rs 4,350.

Earlier, ICICI Securities, in its report dated March 23, said that it prefers DMart over Nestle and listed the below factors that will support the former’s outperformance over the latter.

• DMart’s valuation is turning palatable; the premium over Nestle has reduced from around 50% over the last two years to nearly 8% now;
• Revenue outperformance in comparison to most other FMCG or retail companies, with performance marked at 18-21 per cent CAGR.
• Healthy net profit margin despite subdued performance in the margin-accretive apparel and general merchandise segments. 
• The company’s underperforming apparel segment poses a limited downside risk, and hence, as a platform, it can choose not to sell what it doesn't sell.

Taking into view the above factors, the brokerage upgraded DMart to Add from Hold and pegged the target at Rs 4,800. On the other hand, the brokerage continued with its Hold rating on Nestle (India).