DMart crosses ₹2-trillion in market cap

Avenue Supermarts Ltd, the owner of the DMart chain of retail stores, on Wednesday crossed the ₹2 trillion market valuation after the stock surged nearly 20% in the last three weeks.

The stock has gained in 11 out of the last 13 sessions, tracking gains in the broader market. In intraday trading, the stock was trading at a record high of ₹3,094.95 on BSE, up 3% with a market cap of ₹2.01 trillion. However, at closing the stock erased all the gains and closed at ₹2,906.05, down 3% from the previous close. The benchmark Sensex index fell 0.54% to 48,174.06.

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Since 17 December, DMart climbed 20%, adding nearly ₹35,000 crore to its market value. Domestic equities rose in 21 out of the 23 sessions having gained nearly 8.52%. Investors have rushed to buy the stock amid hopes of a revival of activity soon after India authorized emergency use of Serum and Bharat Biotech vaccine.

DMart continues to offer the highest discount across most of the categories, in turn gaining loyalty, a key factor for driving footfall. The firm targets lower-middle, middle, and aspiring upper-middle-income consumers for whom value for money plays an important role.

The firm faces the risk of greater competition from JioMart, Flipkart and Amazon, but brokerage firm Axis Securities believes that the firm is well placed in the domestic retail industry given its strong execution capabilities, disciplined low prices and low costs strategy, lower cost of operation, and a streamlined distribution network, which help DMart to penetrate newer markets.

Axis Securities has initiated coverage on the stock with a buy recommendation and a target price of ₹3,100 per share.

DMart’s Q2 earnings indicated that its business has been improving month-on-month with the easing of lockdown curbs following the outbreak. It also said that the sales at older stores recovered to 87.5%. Few stores are operating for longer hours to ensure social distancing and serve customers better.

The company has 220 stores and 225 DMart Ready stores as of Q2FY21 and analysts expect that it will add 100 stores by FY23E with 80% of them in the existing clusters.

The stock trades at 41 times multiple EV/Ebitda, which analysts say is attractive given the strong revenue growth and large headroom for expansion. EV is enterprise value and Ebitda is earnings before interest, tax, depreciation and amortization.