DMart operator shares scale new 52-week high after brokerage upgrade

Shares of Avenue Supermarts in Tuesday’s trade (March 26, 2024) have scaled a new 52-week high of Rs 4509.45, gaining nearly 5 per cent. The gains in the stock are spurred after domestic brokerage ICICI Securities upgraded the stock to ‘add’ from the earlier ‘hold’ recommendation with a raised target of Rs 4800, implying a potential upside of nearly 12 per cent. Earlier, the brokerage had set a target of Rs 4100 per share for the retail company.

The brokerage is of the view that DMart operator-Avenue Supermarts will outperform Nestle in the medium term as the premium differential of 50 per cent has now come down to around 8 per cent in the last two years, rendering the stock's valuation palatable.

Furthermore, the domestic brokerage points out that the inherent risk associated with the stock is already factored in its price.

ICICI Securities stated that the company’s performance has been better than its peers in the industry. Radhakishan Damani-led company logged 18-21 per cent revenue CAGR with robust net profit margins.

The brokerage has also increased the FMCG player’s FY25 and FY 26 EPS estimates by 2 per and 4 per cent, respectively.

Earlier last week, CLSA initiated its coverage on the stock with a ‘buy’ rating and target price of Rs 5107, which is the highest pegged target among all the brokerages. The global brokerage maintained that the stock is trading below its historical valuations.

In the last three trading sessions, the stock has gained nearly 12 per cent.

Key downside risks as highlighted by the brokerage are higher-than-expected competitive intensity in food and non-food segments; and slower turnaround of e-commerce operations. Nonetheless, the key upside risks iis significant improvement in the recovery of general merchandise and apparel.

Stock's performance 

Shares of Avenue Supermarts over the last one year have gained 32 per cent as against Nifty 50’s return of over 28 per cent during the same timeframe.

Avenue Supermarts financials

In the December ended quarter of FY24, D-Mart posted consolidated revenue of Rs 13,605.4 crores as against Rs 11,600.6 crore. Net profit at the company also logged a healthy growth of 17 per cent on year to Rs 690.6 crore during the review period.

The stock is trading at premium valuations trading at a TTM price to earnings of 119, which is higher than the industry average.

Avenue Supermarts is a largecap company owning and operating DMart supermarket chain. Through these stores, the company offers a gamut of personal and home products.