On Monday, Nuvama has updated its outlook on Avenue Supermarts (DMART:IN), increasing the price target to INR 5,091 from the previous INR 4,821. The firm has decided to maintain a Hold rating on the stock. The revision reflects an improved gross margin for DMart in the first quarter of fiscal year 2025, attributed to a higher contribution from its General Merchandise & Apparel (GM&A) segment.
The positive impact of the margin improvement, however, has been balanced by the company's heightened investments aimed at enhancing service levels and developing future capabilities. Despite these investments, store productivity is still tracking below the average seen before the COVID-19 pandemic.
Avenue Supermarts has also reported the opening of six new stores during the quarter, which is an increase compared to the number of stores added in the same quarter of the previous year.
Nuvama's revised price target takes into account a slight adjustment in the revenue estimates for fiscal years 2025 and 2026, with an increase of 1/3%. Additionally, the firm has introduced its fiscal year 2027 estimates into the valuation. The target price is based on rolling forward the valuation to the first quarter of fiscal year 2027 earnings, using an unchanged price-to-earnings (PE) ratio of 75 times.
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