Buy This Multibagger Large Cap Supermarket Chain Stock, Shares Can Surge 15%: Prabhudas Lilladher

Leading brokerage firm Prabhudas Lilladher retains its buy call on Avenue Supermarts Limited with an upgraded target price of Rs 5,118/share. Avenue Supermart Ltd. is a large-cap company, which owns and operates the Dmart stores in India. Dmart is a supermarket chain that offers customers a range of products. It has a market cap of Rs 2,89,649 crore. The stock is likely to surge 15% from its current level considering the given target price.

Stock Outlook & Returns over the years

On the NSE, its Current Market Price (CMP) stood at Rs 519.85/share. The shares of the company in the past 1 week and 1 month surged by 1.94% and 1.02%, respectively. It has given 16.11% positive return in the past 3 months and 3.71% in the past 1 year. In terms of return, the stock has performed well on the term. It gave a 142.05% positive return in the past 3 years, and a multibagger return of 304.56% in the past 5 years. 

D'Mart has long runway ahead for growth

Hypermart and Food and Grocery modern retail has undergone considerable consolidation in past few years. 

The drive was led by Future Retail which absorbed Hypercity, Easy day, Nilgiri's, Big Apple and Heritage Fresh. More acquired Jubilant while Spencer's retail acquired Nature's basket. 

However, Future Group is no more relevant while More was acquired by a Samara Capital and Amazon. As of now, Jio Mart, D'Mart, More and Star Bazaar are the key players in the Hypermart segment in India. 

Modern trade in Food and Grocery retailing has high entry barriers given low margins, tight cost control, real estate cost and availability and emerging competition from online retail. Given tough competition and high cash burn in initial years, we see low probability of new players in food and grocery retailing. 

Long runway to growth; BUY for long term

The brokerage said, "We are upgrading our EPS estimates (2.8%/4.2% for FY23/24 and introduce FY25 EPS estimate) and our DCF based target price to Rs5120 (Rs4636 earlier). we believe D'Mart will gain significantly in FY23 from throughput in stores opened during covid. We remain confident that the company's strategy of "Everyday Low Prices" (EDLP) will push sales during current high inflation scenario and will attract the middle-class to organized retail from unorganized retail. With a strong balance sheet and the efficient execution capability of the management, we expect sustained growth in coming years." 

Buy for target price of Rs 5,118/share

The brokerage said, "We are positive on D'Mart Ready as sales double in FY22 (Rs1.4bn in FY19 to Rs16.6bn in FY22), operations extend in 12 cities and pick-up points increase to 519. Management seems more confident of the scalability of this format, we expect it to achieve sales of Rs54bn with EBIDTA breakeven in FY25." 

It added, "Also with the festive demand hitting, D'Mart will witness strong growth in the zero covid restrictions environment. We believe D'Mart has a huge growth runway ahead given low probability of heightened competition in modern trade, 1500+ store potential in existing clusters (current stores 294) and gradual scale up in D'Mart Ready. We estimate 42% PAT CAGR over FY22-25 and retain BUY with rise in DCF based target price to Rs5118 (Rs4636 earlier)." 

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.