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IIFL has a “reduce” rating on Avenue Supermarts with a price target of ₹3,800, which is nearly the same level at which the stock is trading.
From the recent peak of ₹5,484 in September this year, shares of Avenue Supermarts are down 30% from those levels.
IIFL highlights the increased competition in the Quick Commerce space, which is having a bearing on Avenue Supermarts and its own chain DMart Ready.
Flipkart Minutes has entered the space with pricing similar to Flipkart and Amazon Tez is also likely to enter the space soon. Zepto has also launched a “Super Saver” for orders above ₹900.
“All these three options provide home delivery at prices which are 2% to 3% below DMart,” IIFL wrote in its note. “While these will probably compete with other QC players, it seems unlikely that DMart will remain unscathed,” the brokerage added.
On the flip side, IIFL said that product availability was 100% on e-commerce platforms, but only if one is willing to compromise on the pack size, while on Zepto, only one out of 16 products was unavailable. “In conclusion, if a consumer is willing to compromise on the pack size, they will be able to get their desired product most of the times at Flipkart, Amazon and Zepto,” IIFL said.
Risks to Avenue Supermarts’ earnings remain skewed to the downside as competition continues to engage in aggressive discounting to attract consumers. Earlier, IIFL had mentioned that if the high-throughput metro stores of DMart continue to remain impacted, its Earnings Per Share (EPS) estimates could be further reduced by 12%.
Out of the 29 analysts that have coverage on Avenue Supermarts, 13 of them have a “sell” or equivalent rating on the stock, seven of them say “buy”, while the other nine have a “hold” rating.
Shares of Avenue Supermarts have pared early gains and are currently trading little changed at ₹3,832. The stock is down 5.5% so far in 2024 and may end up with a negative return year for the second time in the last three.
