Emkay Global has initiated coverage on Avenue Supermarts, operating as DMart, with a 'Sell' rating, citing concerns over limited total addressable market (TAM) expansion, rising competition from quick commerce players, and slowing growth visibility.
The brokerage noted that despite DMart’s strong brand positioning, its market share remains low at around 1.5 per cent, with coverage of only 50 per cent of India’s retail TAM, compared with much higher penetration levels seen in global peers like Walmart. It also highlighted that the rapid expansion of quick commerce platforms is reshaping consumer behaviour, with these players gaining strong traction across metros and deepening presence in smaller cities as well.
According analysts, DMart is unlikely to see meaningful same-store sales growth improvement, except for seasonal fluctuations and possible price hikes by brands, given the competitive intensity in the sector. It also pointed out that capex per store has risen about 60 per cent, leading to a decline of around 600 basis points in return on invested capital (RoIC) to 13 per cent during FY23–26E.
While the company has executed well on store expansion and private label development, the brokerage believes its valuation of around 70x one-year forward earnings already factors in strong expectations. It has factored in a 19 per cent Ebitda CAGR over FY25–35E, driven by 6-7.5 per cent same-store sales growth (SSSG), 13 per cent store expansion, and 200 bps margin improvement, but maintains a cautious stance on the stock.
Emkay has set a target price of ₹3,700, based on a DCF-implied valuation multiple of 54x FY28E standalone EPS, which accounts for about 93 per cent of the value, while the remaining 7 per cent is derived from its subsidiaries.
The target price implies a potential upside of about 16 per cent from the April 10, 2026, closing level of ₹4,401 on the NSE. Around 12:35 PM, shares of DMart were trading at ₹4,445, up 1 per cent. The stock touched an intraday high of ₹4,450 on the NSE. In comparison, the benchmark NSE Nifty50 was quoting at 23,829.45 levels, down by 221 points or 0.92 per cent.
Here's why Emkay Global is cautious on Avenue Supermarts:
Rising capex, leasing shift may pressure valuations
According to Emkay Global, DMart’s net present value (NPV) advantage from its fully owned COCO (company-owned, company-operated) model is gradually narrowing due to a sharp rise in capex per store, which has increased by around 60 per cent over FY22-25 compared to earlier years.
While the owned model typically delivers 25-30 per cent higher NPV than leased stores, the benefit is now diminishing as costs rise. The brokerage noted that at a cost of equity of 11.6 per cent, the NPV benefit from the owned model is fading, although a potential shift to debt funding (cost of debt: 6.2 per cent) could still help retain a 30 per cent NPV advantage. While store additions have picked up (85 in FY26 vs 50 in FY25), any shift towards leased stores, or continuation of a fully equity-funded model, could lead to valuation de-rating.
Bill cuts decline, QC growth weighs on productivity
The brokerage said DMart’s throughput has remained flat at around ₹36,000 per square foot during FY20–25, after witnessing a strong 12 per cent CAGR over FY12–20, indicating a slowdown in productivity growth. It attributed this to a 6 per cent decline in bill cuts per square foot, compared to a 5 per cent increase in the earlier period, even as average bill size continued to grow at 6–7 per cent CAGR. Gross margins have also slipped by about 70 bps, likely due to a weaker product mix, while operating costs have remained stable amid lower footfalls. Emkay expects Ebitda per square foot to remain flat over FY25–28E, with overall Ebitda growth of around 17 per cent, largely tracking store expansion.
Walmart’s evolution highlights need for strategic shifts
Walmart’s journey to a $1 trillion market capitalisation highlights the importance of continuous total addressable market (TAM) expansion and strategic evolution, the brokerage said in its note. It noted that Walmart expanded into B2B in 1983, entered international markets in 1993, scaled up e-commerce after 2016, and more recently built high-margin verticals such as advertising, logistics, and memberships. It also undertook bold structural changes, including shifting from smaller discount stores (50,000 sq ft) to larger supercentres (180,000 sq ft), underscoring the need for strategic transformation to sustain long-term growth.