Sell Avenue Supermarts Ltd for the Target Rs 3,700 by Emkay Global Financial Services Ltd
Our monthly basket tracker for DMART has seen a 6-7% inflation in its bill size, led by a broad-based increase of 8-14% across categories, barring personal care, which is down ~3% (vs last year; Exhibit 1). In addition, we believe the increase in net bill value for retailers like DMART should see an additional 2-3% benefit, due to GST reduction in Sep-25 (Exhibit 2). Ceteris paribus, an inflationary period is beneficial for retailers in the short term, from a bill size perspective. However, we will be closely monitoring its impact on bill cuts and a possible cut in discretionary consumption. With respect to competitive intensity from Q-Com players, we are noticing some reduction in discounting at Zepto, though Amazon Now remains aggressive in terms of cashback offers (Exhibit 4) and Flipkart Minutes is seeing growing traction in Tier-2+ towns, as per media reports. Blinkit continues to lead with focused initiatives around experience, assortment, and accessibility. In our view, DMART has a strong brand recall but has been slow on TAM expansion in terms of categories (~50% of India retail TAM), consumer cohorts (low/mid income), and sales channels (largely via physical stores). The stock has been an underperformer and down ~20% over the last 12 months. The re-rating requires more sustainable SSG drivers, rather than short-term inflation triggers, in our view. We maintain SELL with an unchanged TP of Rs3,700 (55x Sep-28E EPS).
Confident of EDLC-EDLP strategy despite increasing competition
In its recent annual analyst meet, DMART acknowledged the entry of new players in the Q-Com space, where competitive intensity would remain high in the near term. However, management remains confident of DMART’s EDLC-EDLP strategy, highlighting core focus on providing better value to customers at DMART stores. It believes that continued execution of its strategy, coupled with disciplined brick-and-mortar expansion, will enable resilience despite the growth of Q-Com. It also noted that organized penetration remains low, providing headroom for multiple formats to coexist. Further, it observed that globally, consumers do not rely on a single retail format and make different shopping trips for different occasions.
Ready to continue its focus on planned purchases rather than instant delivery
For DMART Ready, the company’s strategy is to double down on 11 identified cities, which in the past contributed majority of e-commerce revenue, with increased focus on improving assortment, enhancing digital user experience, and speed of delivery. Its immediate priority is to establish and validate the business model across these 11 cities while ensuring that the business can eventually achieve profitability. However, it does not intend to participate in the instant delivery segment and is positioned for planned purchases, offering value-led pricing with delivery within 6 hours.
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