Geojit Financial Services has maintained a "Buy" call on Avenue Supermarts Ltd., parent of the DMart retail chain, adjusting its target price to Rs.4,471 from Rs.5,310. With a resilient business model and expanding store network, DMart is strategically positioned for growth despite a slowdown in same-store sales. The company’s lean balance sheet, absence of debt, and focus on high-turnover categories are expected to boost margins and topline growth over the coming years.

Investment Overview

Target Price: Rs.4,471
Current Market Price (CMP): Rs.3,986
Upside Potential: +12%
Recommendation: Buy
Sector: Retail

Performance Summary for Q2FY25

Revenue: Avenue Supermarts reported a 14% YoY growth in revenue, reaching Rs.14,050 crore for Q2FY25. Revenue per store growth, however, moderated to around 2% compared to 7% YoY.
Margins: Gross margin increased by 20 basis points YoY to 14.2% due to an improved product mix, but EBITDA margin declined by 30 basis points YoY to 7.9%, impacted by increased operational costs.

Expansion and Retail Strategy

New Store Additions: DMart opened 12 new stores in H1FY25, consistent with previous years' expansion pace. The company’s retail footprint now spans 15.8 million square feet across 377 stores.
Revenue Growth Drivers: With its continued store expansion and efficient distribution, DMart expects revenue growth to pick up in H2FY25, driven by seasonal demand and product diversification.

Focus on High-Margin Segments

General Merchandise and Apparel: The mix of high-margin categories, such as general merchandise and apparel, rose to 23.45% in H1FY25 from 23.21% YoY. This segment’s growth is anticipated to further drive margins, especially during festive periods.
Everyday Low Price Strategy: DMart's procurement approach and operational efficiency support its "Everyday Low Cost - Everyday Low Price" model, setting it apart in India's competitive retail sector.

Online Expansion with DMart Ready

E-commerce Growth: DMart Ready, the company’s online platform, is operational in approximately 24 cities, contributing 2.7% to overall revenue with a YoY growth of 21.8% in H1FY25.
Strategic Focus: DMart Ready is poised to expand further, supplementing physical stores and supporting DMart’s omnichannel approach.

Financial Projections and Valuation

Revenue and PAT Growth: Avenue Supermarts projects a revenue CAGR of 20% and PAT CAGR of 23% over FY24-26E, underpinned by its store network and product expansion.
DCF-Based Target: The revised target price of Rs.4,471 values DMart at a forward P/E multiple of 64x on FY26 projected earnings, down from 71x, reflecting a cautious stance on topline growth moderation.

Conclusion: Buy for Long-Term Portfolio Growth

Geojit Financial Services reiterates a "Buy" recommendation for Avenue Supermarts, supported by its robust expansion strategy, zero-debt profile, and market dominance in value retailing. With a forecasted 12% upside from current levels, DMart remains a compelling investment for long-term growth, positioned to capitalize on India’s evolving retail landscape.