Morgan Stanley has recently upgraded Avenue Supermarts Ltd., which operates under the name DMart, to an 'overweight' rating due to the company's strategy of prioritizing groceries. The investment firm anticipates a surge in DMart's profitability once the company fully activates its growth mechanism. This Tuesday, the target price for DMart's stock was revised upwards from Rs 3,786 to Rs 4,471 ($1 = Rs 83.26), suggesting a potential 14% upside.
DMart is well-positioned to capitalize on the largely unorganized Indian grocery market, which currently accounts for 96% of the total sector. The opportunity for DMart is further amplified by several factors including rising per capita income, market formalization, urbanization, and the growing prevalence of larger retail stores in the country.
Despite DMart's hesitance to expand its online presence due to a strong emphasis on profitability over growth and its land parcel purchasing strategy for network enlargement, the company's low price points and promotion of employee ownership are expected to deliver above-average growth. Additionally, DMart's focus on high return on invested capital (ROIC) further strengthens its growth prospects.
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