Avenue Supermarts rises on store additions; Morgan Stanley remains bullish

Shares of the D-Mart operator Avenue Supermarts saw an uptick on March 13, following the announcement of the company opening of two new stores in Proddatur, YSR Kadapa in Andhra Pradesh, and Shirdi, Maharashtra.

This comes a few days after the supermarket chain opened a new store in Bengaluru, Karnataka. With these additions, the company’s total store count across India has reached 350.

Morgan Stanley has issued an ‘overweight’ call on Avenue Supermarts with a target price of Rs 4,471 per share. The brokerage noted that DMart Ready is not solely a quick delivery platform but it excels in pricing strategy and SKU availability, outpacing its peers.

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“DMart maintains its positioning as a value-focused retailer. Additionally, DMart Ready leads in SKU availability compared to its peers and is showing sequential improvement,” said Morgan Stanley in a note.

While comparable to grocery e-commerce players, Avenue Supermart’s delivery service does not directly compete with quick commerce, the brokerage added.

On March 12, DMart shares closed 1 percent higher at Rs 4,028.40 on the National Stock Exchange (NSE). In the past year, the stock has risen 20 percent, underperforming benchmark Nifty 50 which has risen 30 percent during this period.

In an earlier report, Morgan Stanley picked DMart as its preferred choice among online grocers 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 is sufficient for online, offline, and quick delivery to co-exist, it said, adding that DMart’s profitability is one of the factors for its positive outlook.

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

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The company has taken measures to fix its apparel business. If the segment does not return to previous levels, DMart is planning to horizontally scale in non-FMCG categories to drive growth, the foreign brokerage said.

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