Target: ₹3,700
CMP: ₹3,711.95
Our monthly basket tracker for Avenue Supermarts (DMart) has seen a 6-7 per cent inflation in its bill size, led by a broad-based increase of 8-14 per cent across categories, barring personal care, which is down around 3 per cent (vs last year). In addition, we believe the increase in net bill value for retailers like DMart should see an additional 2-3 per cent benefit, due to GST reduction in Sep-25.
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 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 per cent of India retail TAM), consumer cohorts (low/mid income), and sales channels (largely via physical stores). The stock has been an underperformer and down about 20 per cent 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 ₹3,700 (55x Sep-28E EPS).