Radhakishan Damani’s DMart plans to boost its store count fivefold as it seeks to grow its market share. DMart is also attempting to scale up its unprofitable e-commerce business. DMart further plans to add more online fulfillment centers to the two current ones in Mumbai.
Avenue Supermarts Ltd., the fourth-largest chain of convenience stores in India, is also looking to scale up the retail chain to 1,500 supermarkets from 284, Chief Executive Officer Neville Noronha said.
“Large players can happily operate without worrying about each other,” Noronha said. “There’s no need to worry about that for another 20 years — the headroom for growth is awesome,” told Bloomberg in an interview.
D-Mart opened its highest-ever 50 stores in the year through March, its most ever, and wants to tap India’s teeming middle-class, which according to some researchers could account for as much as half of the country’s almost 1.4 billion population.
Noronha believes the sky’s the limit for any brick-and-mortar retailer in the country. “You have to focus on opening more and more stores” as the organized grocery market in India was nowhere near saturation, he said.
Strong Growth Visibility
India’s organized retail market is still at a nascent stage and estimated by the government’s export promotion agency to be growing between 20 per cent to 25 per cent annually. Avenue Supermarts is likely to add 135 DMart outlets by March 2024, according to a report this month by Mumbai-based brokerage Motilal Oswal.
Amnish Aggarwal – Head of Research, Prabhudas Lilladher Pvt Ltd, said: “D’Mart ready sales increased by 110% backed by strong demand. D’Mart Ready has added 7 new cities to its kitty – Bhopal, Indore, Kolhapur, Nagpur, Surat, Vadodara and Vizag. However, the gross margins contracted by 78bps in FY22 vs FY21 and the losses rose by 76 per cent in FY22 on the back of operational costs as the business is still in the scale-up mode. In order to reduce the delivery time, D’Mart plans to increase the number of fulfillment centers which will happen gradually. The opportunity for D’Mart Ready lies more in metro and Tier 1 cities vs Tier 2 & 3 cities. The customer shopping from D’Mart Ready is more affluent than the one coming to the store, hence the company is working towards changing the assortment of goods. D’Mart ready pick up points have been increased to 519 and Mumbai accounts for dominant part of sales.”
D’Mart has begun to witness strong rebound in growth with zero covid restrictions and the momentum is expected to sustain. We believe D’Mart has a huge growth runway ahead given low probability of heightened competition in modern trade, 1200+ store potential in existing clusters (current stores 294) and gradual scale up to D’Mart Ready. We estimate 39.7 per cent PAT CAGR over FY22-25 and retain BUY with a DCF-based target price of Rs 4636, Aggarwal said.
However, experts believe that while the sector continues to see green shoots in the form of improved footfalls and normalization of raw material prices, continued inflationary pressures and the impact of a delayed monsoon can remain an overhang on demand for a couple of quarters.