- UBS raised Avenue Supermarts target price to Rs 5,600 from Rs 5,050
- Target price implies a 19% upside from Wednesday’s closing price
- Avenue Supermarts expected to add 230-250 stores in the next three years
UBS Global Research hiked Avenue Supermarts Ltd.'s target price and maintained a Buy rating on the stock because of its strong growth outlook. The brokerage said that DMart is a compounding growth story while stock provides a favourable risk-reward ratio.
UBS Global Research raised the target price to Rs 5,600 from Rs 5,050. The current target price is implying a 19% upside from Wednesday's close price.
Despite the recent increase in the share price, the risk-reward ratio remained favourable, according to the brokerage. Its base case is a three-year revenue CAGR of 20% which limits any material valuation derating.
The bull case is that Avenue Supermarts can report 22% revenue growth because of faster network rollout and growth in DMart Ready, UBS Global Research said. This could imply potential upside to Rs 6,600 for the stock price.
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UBS Global Research is expecting that Avenue Supermarts will likely enter a phase of significant network rollout acceleration. The retailer can add 230–250 stores in next three years, unlocking an accelerated growth trajectory. Same-store sales growth in the previous year erased worries about rise of e-commerce. The business model to cater to value-seeking middle and lower-middle income consumers is execellent according to the brokerage.
Avenue Supermarts' DMart also seems to be the key beneficiary of organised grocery retail, which could help the company consistently grow at 18–22% for many years. This will make the price-to-earnings ratio tenable.
In the bear case, UBS Global Research is estimating a 18–19% CAGR, which leads downside case of Rs 4,400 apiece, the brokerage said. The key downside for the stock is failure to execute network rollout in a timely manner and competition weighing on same-store-sales growth.
UBS Global Research has trimmed earnings-per-share estimates by 2–4% for financial years 2027 and 2028, respectively. Meanwhile, they raised the estimates for network rollout assumption, roll forward valuation, and lift the target price to Rs 5,600 apiece.
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