The best recourse to conviction is best-in-class-research. We have attempted one on Avenue Supermarts (DMART). We believe, DMART stock is a 100 bagger, even from current price, over the next 25years, said IDBI Capital in its report.
"The company has potential of compounding EPS at +28% CAGR over FY21-46E. In this report; we share, our learning from research that we have done to understand evolution of the most popular hard-discounter in US - The Walmart (physical + ecommerce) and thereby implications; similarities, shortcomings and optionality for DMART. This is an original work (not what management said), ideas have been inspired by books that we have read so-far (>60 after lockdown; on politics, religion, brands, retail etc.) and last 49 years annual reports/transcripts that we have browsed on Wal-Mart," the broking firm said.
"Despite Walmart claims to have competitive edge in retail, as they have more number of touch-points through their physical stores in USA (90% US population finds a Walmart with-in 10 miles), it has not been able to compete with Amazon (Amazon e-com revenue is 6x of Walmart e-com revenue). Online retailing demands different value/cost network compared to offline retailing. We observe that; 75% of Wal-Mart's e-commerce business comes from non-store inventory. Hence, as per evolutionary history; it would be tough to mix online and offline business. Therefore, given the compulsion (as per customer demand) of e-commerce presence, it would be wise to treat both the business differently. Hence, DMART using DMART Ready model is a right-full approach towards solving for convenience demand of customers," it said.
IDBI Capital sees DMART as a high conviction Buy idea. "We upgrade our valuation multiple to 60x EV/EBITDA as we expect DMART to grow at higher rate for longer period of time. Our revised target price stands at Rs 3,699."
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