Broker’s call: Avenue Supermarts (Sell)

Avenue Supermarts, commonly known as DMart, is facing a sell recommendation from a broker due to inflationary pressures and underperformance. The basket tracker for DMart has experienced a 6-7 percent increase in bill size, driven by a 8-14 percent rise across various categories, excluding personal care which has decreased by 3 percent.

The company attributes this inflation to a GST reduction in September 2025. While an inflationary period can be advantageous for retailers in the short term, the broker will be monitoring its effects on bill cuts and potential reductions in discretionary spending.

Competition from Q-Com players like Zepto and Amazon Now is shaping the retail landscape, with Zepto showing reduced discounting and Amazon Now maintaining aggressive cashback offers. Flipkart Minutes is gaining traction in tier-2 and tier-3 towns. Despite DMart's strong brand recall, it has been slow in expanding its total addressable market (TAM) to include 50 percent of India's retail market, low and mid-income consumer segments, and sales channels primarily through physical stores.

The stock has underperformed, declining by about 20 percent over the past year. The broker believes that DMart requires more sustainable drivers of SSG (Shareholder Service Growth) factors rather than short-term inflation triggers for a re-rating. Consequently, the recommendation remains Sell, with the target price unchanged at ₹3,700, equivalent to a price-to-earnings ratio of 55 times the September 2028 earnings estimate.