Will D-Mart increase speed up its store expansion?A pedestrian walks past a D-Mart supermarket operated by Avenue Supermarts Ltd. (Photographer: Dhiraj Singh/Bloomberg)

Why Citi Is Not Bullish On D-Mart’s Operator

The research arm of Citi Group initiated coverage on Avenue Supermarts Ltd., the parent of the Mumbai-based supermarket chain D-Mart, with a ‘Sell’ rating on account of increasing threat from the e-commerce space and high valuations.

Like many other countries, concerns of possible disruption for brick-and-mortar retail businesses in the longer term due to e-commerce cannot be ruled out, Citi said in a note. “Medium-term upsides seem more than reflected in the current stock valuations,” it added.

The brokerage has given the stock a target price of Rs 1,255, implying a 13.3 percent downside from the stock’s closing price yesterday. It was trading 1.73 percent lower at Rs 1,422.75 on the NSE at 10.20 a.m.

Citi, which compares D-Mart to global retail major WalMart that signed a deal on Wednesday to acquire a majority stake in India's largest e-commerce firm Flipkart, also expects pressure on India's retail company's profitability due to increasing competition in the e-commerce space.

Of the total brokerages covering the stocks, eight have a ‘Sell’ rating on D-Mart while only five have a Buy. The company’s shares have given returns of over 376 percent since its listing in March last year.

Also read: Here's What Wall Street Is Saying About Walmart's Flipkart Deal

Here’s what else Citi had to say on Avenue Supermarts:

  • D-Mart, which owns most of its stores, is looking to add more stores through the leased model, which can be a risk for the company.
  • Ratio of owned to leased stores could move to 80/20 (compared to around 87/13 as of now). This could weigh on DMart's margins.

Also read: D-Mart Parent’s Profit Jumps 65% On Demand For High-Margin Products