Avenue Supermarts, the parent company of DMart, has received a favourable call from BofA, which has upgraded its rating on the counter from 'underperform' to 'neutral', hinting that the retailer's worst days of sluggish growth may finally be behind.
The brokerage had maintained a target price of Rs 4,525 when the note was published on April 6, before market open. But thanks to a 4% rally, the target has been met, and the stock is due for a target price revision.
Nevertheless, on a fundamental level, the retailer surprised the market by ending FY26 on a high note. While store additions had been slow for much of the year, the company closed with 85 new stores, which is a massive jump from the 50 stores that were added in the previous fiscal.
Meanwhile, fourth quarter revenue growth stood at 19%, comfortably beating BofA's 16% estimate. This performance suggests the underlying same-store sales growth (SSSG) may have bottomed out, even as the company deals with a tricky geopolitical scenario and potential gas shortages.
DMart has been quite efficient in shielding itself from the quick commerce wars in urban centres, notably playing a different game altogether. Approximately 80% of Dmart's stores are now located outside of metros and tier-1 cities, where competitive intensity is significantly higher, particularly from quick commerce.
While BofA notes that is too 'premature' to draw structural conclusions about the long-term threat of quick-commerce, it has commended the retailer for its smart play in the short run.
DMart is also gearing up for a leadership transition as FY27 kicks off. Long-time MD and CEO Neville Noronha is departing, with Anshul Asawa set to take the helm. The market is waiting for the July analyst call for clarity on Asawa's strategy for DMart Ready and future expansion.
But in the meantime, BofA believes the stock's current valuation - trading at 65x FY28 earnings - already prices in a lot of the medium-term upsides. This could effectively cap how much higher the stock can possibly climb in the near term.
ALSO READ: DMart Gets An Upgrade From Morgan Stanley With 14% Upside
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