DMart Is Morgan Stanley's Most Preferred Online Grocer

DMart is a preferred choice among online grocers for Morgan Stanley even as the retailer is not the go-to e-commerce platform and also does not offer instant delivery.

The total addressable market for the supermarket chain, operated by Avenue Supermarts Ltd., is sufficient for online, offline, and quick delivery to co-exist, Morgan Stanley said in its Nov. 23 report. The brokerage also cited DMart's profitability as one of the factors for its positive outlook.

A recent survey by Morgan Stanley indicates a rising preference towards online grocery shopping. While the grocer's e-commerce platform, DMart Ready, was not top choice among survey respondents, its retention rate is very close to that of Amazon Fresh, according to the brokerage.

DMart is Morgan Stanley's top pick among peers, with a price target of Rs 4,471 apiece for Avenue Supermarts Ltd., indicating an upside of 16.6%.

Evan as DMart remains a player in the offline grocery opportunity, the retailer pursues a prudent online approach and has minimised loss, the brokerage said.

Morgan Stanley's survey results also indicate that respondents are using quick delivery apps for regular purchases and not just top needs.

For DMart Ready, the company is focusing on increasing basket value; it sees an opportunity in quicker delivery, does 100% delivery in 24 hours and is working toward 12-hour delivery.

For its offline business, the company is looking to scale up presence in the existing 22 cities, rather than expanding into new ones, the brokerage said, adding that loss in Mumbai is lower than other cities.

The management is more confident on operating the business and minimising loss. It expects to provide a margin framework in the next 2-3 years, according to Morgan Stanley.

The stock is the brokerage's top consumer discretionary pick, due to cost efficiency, economies of scale and balance-sheet strength.

"We believe DMart is pursuing a grocery-first strategy to re-engineer growth." Macro headwinds, it said, are in the past and general merchandise should start picking up in the coming quarters.

The company has taken measures to fix its apparel business, Morgan Stanley said. If the segment does not return to previous levels, the company plans to horizontally scale in non-FMCG categories to drive growth, it said.