IGI Logo

Store additions and SSSG expectations tempered; downgrade to Neutral

We attended Avenue Supermarts (DMart)’s FY26 analyst call, wherein the new CEO reaffirmed continuity of the company’s philosophy around disciplined execution with a target of ~15% YoY annual store additions, noting that the store acceleration seen in FY26 (+20% YoY) may not be feasible in FY27. Management aims to maintain SSSG at levels similar to FY26 (~8%) in the near term, as high-throughput metro stores continue to face capacity constraints and increased competition from Quick Commerce (QC). Further, the focus in DMart Ready would be to achieve profitability in the existing footprint before looking at geographical expansion. With expectations on store acceleration tempered and rising competition denting growth in metros, we believe there are limited positive triggers for the stock. Consequently, we downgrade DMart to Neutral with a revised TP of INR4,015.

Expectations around acceleration in store additions tempered

* DMart continues to target ~15% YoY annual store additions, with some variation on a year-to-year basis, depending on land acquisition, approvals, and project execution.

* Management noted that acceleration seen in FY26 (20% YoY) may not be feasible, and the internal target for the company remains ~15% store additions on an annual basis.

* Land acquisition and regulatory approvals are the key bottlenecks in ramping up store additions rather than constraints on capital or management’s bandwidth.

* Management remains open to taking leverage on the balance sheet to fund the store additions over the medium term and expects internal accruals to be sufficient to fund store additions in the long run.

* The constraints of getting the right properties also exist in the leased model, but management is open to long-term leases for store openings. The company has 68 stores (~13.5% of overall) on leases, with slightly higher: 15 out of the 85 stores opened in FY26 under the leased model.

* DMart’s store expansion is focused on adding stores to reduce the load on high-throughput metro stores as well as forays into newer cities through a cluster-based approach.

* We now build in ~75/85 store additions in FY27/FY28 (vs. 85/90 earlier), reflecting management’s measured outlook on store expansion.

Valuation and view

* Competitive intensity is likely to remain elevated, with continued investments by QC players and increasing participation from large offline and online retailers.

* While the QC dent remains concentrated in dense metro catchments for now, we believe overall discounting and customer acquisition intensity are unlikely to moderate in the near term and could weigh on DMart’s growth and margins over the medium term

* We moderate our FY27 store opening assumption to 75 stores (~15% YoY) from 85 earlier, reflecting a more measured expansion outlook. Consequently, we cut our FY27–29E EBITDA estimates by ~2% each.

* We now build in a consol. Revenue/EBITDA/PAT CAGR of 16%-17% over FY26- 29E, supported by ~250 store additions and mid-to-high single-digit LFL growth.

* We assign a 35x Sep'28 pre-IND AS EV/EBITDA multiple (implying ~60x Sep'28 P/E) to arrive at our revised TP of INR4,015 (from INR4,800 earlier).

* Acceleration in store additions remains the most important growth lever for DMart. However, with management’s conservative outlook, we believe the stock lacks triggers to outperform, and hence, we downgrade DMart to Neutral.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412