Dmart stock gains as Maharashtra lockdowns build pressure on firm: Analysts

As much as 72 per cent of the company's stores reached their full strength almost in December, signaling a recovery

jiomart, Dmart — The near-term trigger for the company would continue to be the expansion of its physical store network and improvement in margins

2 min read Last Updated : Mar 23 2021 | 1:04 AM IST

From its lows in October, the Avenue Supermarts (DMart) stock has gained 49 per cent riding on improved demand and a recovery in operational metrics. Around 72 per cent of its stores reached 96 per cent of year-ago levels in December, signalling a sharp recovery. Except for out-of-home products, the sales and mix of most other categories are now in line with pre-pandemic trends.

The near-term trigger for the company would be the expansion of its physical store network and improvement in margins. Given its cluster-based approach and the fact that it trumps peers across most operational metrics, its expansion shall give it scale while helping it achieve above-market margins.

With 96 per cent of the grocery market in the hands of the unorganised segment, the growth potential is immense, believe analysts.

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Citing the example of Walmart, the US’ largest offline retailer, and its growth and market cap trajectory, IDBI Capital believes DMart has the potential to replicate Walmart’s success story by growing its net profit over 581 times and market cap by 100 times over the next 25 years.

Other brokerages, however, say that the company’s online growth will be a key factor for multiple expansions. Analysts at Edelweiss Research say if the company can expand its online presence aggressively, tapping metro cities, and the pricing scenario is stable, the stock shall rerate further irrespective of the initial losses the company will incur.

While there is little doubt about long-term growth potential, investors will have to await attractive entry points as near-term prospects are clouded by regional lockdowns, including in Maharashtra which accounts for 36 per cent of stores, and lack of aggressive intent in the e-commerce foray.

In addition to a sharp correction, factors that may tilt Morgan Stanley’s stance in favour of the company are the higher-than-expected ramp-up of its e-commerce business, DMart Ready, which now has a presence in five large cities and faster vaccination.