DMart is nearing an all-time high at a PE of 130. Can you still buy it?

If you take a look at Avenue Supermarts Ltd, which operates the one-stop supermarket chain DMart, it's been quite a ride since its 2017 initial public offering. From day one, the stock had an impressive run, reaching an all-time high of around ₹5,900 in 2021, an impressive 20-fold increase from its listing price of ₹299 per share. It seemed like nothing could stop DMart's upward march, especially when it soared even higher during the first wave of covid-19 in 2020. This made sense—people were stocking up, and DMart was perfectly positioned to benefit from the demand surge.

But by late 2022, things took a sharp turn. The stock dropped by about 40%, falling below ₹3,200. Concerns around slower growth, rising competition, and the rise of quick-commerce players nibbling at DMart's market share started to weigh on investor sentiment.

Fast forward to today, and DMart is back near its previous highs—just 10% below its all-time peak. With a market cap close to $40 billion and a price-to-earnings (PE) ratio of around 125, many are once again questioning if it’s too expensive to buy.

Textbook investing would suggest so. But is it really the case, or are we on the verge of another secular upward run? Let’s break down the numbers and see what might be fuelling DMart’s momentum.

DMart’s path to sustained growth

To understand DMart’s growth potential, let’s compare two key periods: The current stock price near its all-time high and the last time it peaked in 2021.

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If we look at the company’s performance during these two periods—revenue, number of stores and profit after tax (PAT)—the growth has been consistent (see figure 2). So, growth isn’t really a concern. But the bigger question is, can DMart keep growing at this pace?

The foundation of DMart’s growth is simple: How many new stores can they open? By 2024-25, the company is expected to have just over 400 stores. But what’s the real market size? While there’s no direct comparison for DMart in India in terms of scale and store count, let’s look at the US for some context.

In the US, there are over 6,000 large superstores, each typically 150,000 square feet. This includes around 3,500 Walmart stores, 900 Costco outlets, 800 Kroger stores, and roughly 1,000 Target superstores, according to their annual reports.

If we apply the same logic to India—where there is one large superstore for every 60,000 people—the potential is massive. India could theoretically support around 20,000 stores. Even if we assume that only urban India has the demand for this type of retail, that still leaves us with room for about 7,000 stores.

Of course, DMart won’t be the only player in the market, but even if it captures 40% of the market, that would mean around 3,000 stores—a tenfold increase from where it is now. But here’s the catch: How will DMart fund this aggressive expansion?

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Until 2018-19, DMart was opening around 20 to 25 stores per year. Now, it's opening about 40 stores annually. The capital required to open a new DMart store is roughly ₹40 crore. That means to open 40 stores, the company needs around ₹1,500 crore in capital expenditure.

The key here is that most of this money comes from the profits DMart generates, as the company prefers to buy properties rather than lease or rent them.

If DMart can maintain its margins, the profits will continue to fuel store openings. But let’s be realistic: Even if DMart ramps up to opening 50 stores a year, it would still take 60 years to reach 3,000 stores. Even at a pace of 100 stores per year, it would take 30 years to hit that target. So, the big question is: Can DMart speed up this process?

To open 100 stores a year, DMart would need around ₹4,000 crore annually. With a net profit margin of around 5%, that would require total sales of ₹80,000 crore. Considering DMart’s current sales are already around ₹50,000 crore, this target doesn’t seem too far off.

The key lies in the company’s business model and how it plans to scale efficiently.

DMart’s strategy: Key growth drivers

DMart's business model is built on three essential pillars that keep it connected to the masses and ensure sustained growth: food and groceries, private labels, and general merchandise.

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Food and grocery: The backbone of the business

To truly appeal to the broader population, DMart needs a strong presence in the food and grocery sector. Without it, the company would be catering to only the top 1% to 2% of the population, similar to some premium retailers. Instead, DMart is a go-to for everyday items for millions of Indian households, generating around 55-57% of its revenue from this segment.

This broad base attracts foot traffic, which also leads to increased sales in non-food items. For instance, non-food FMCG products, like cleaning supplies and personal care items, contribute about 21% to DMart’s revenue. As more people come in for groceries, they often end up purchasing these additional items, boosting the company’s overall earnings.

Private labels: A growing opportunity

Private label products are another area where DMart sees significant potential. These are in-house brands sold at a lower price point, usually 20-25% cheaper than national brands. Currently, private labels account for about 5% ( ₹2,796 crore) of the company’s revenue in 2023-24.

If DMart can increase this figure to around 15-20%, it could have a notable effect on profitability. For example, boosting private label sales could raise DMart’s net profit margin by 0.4% to 0.5%. That’s an extra ₹500 crore in profit on ₹100,000 crore of sales, which could fund about 10 new stores each year. It’s a solid opportunity that could pay off in the long run.

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General merchandise: Unlocking future growth

General merchandise, which includes items like clothing, toys, and home goods, contributes around 22-24% of DMart’s revenue. This segment offers plenty of room for growth, especially as DMart expands into larger stores with new concepts.

With larger stores, DMart is already experimenting with adding food courts inside its stores, similar to Ikea. This has generated sales of ₹177 crore in 2023-24 with minimal losses. Another potential growth area is the inclusion of pharmacies within DMart stores, although this part of the business is still in its early stages.

Quick commerce competition

While there is growing competition from quick-commerce players, DMart operates in a separate category. Quick commerce, with its focus on convenience and fast delivery, primarily serves urban consumers who prioritize speed. DMart, on the other hand, focuses on value and low-cost products, which appeal to a much broader audience. As DMart's chief executive, Navil Noronha, has said, "India will probably see more value retailers than the rest of the world."

DMart’s fulfilment is largely store-driven, meaning its low-cost advantage remains intact. While some urban shoppers may choose quick commerce for everyday items, the majority of Indian consumers will continue to find the best value in discounters like DMart and Reliance Smart.

DMart Ready: The dark horse

DMart Ready, the company’s online platform, is another exciting growth story. While it’s still a small part of the business, contributing 5.7% of total revenue in 2023-24 ( ₹2,899 crore), it’s growing quickly. Losses are also shrinking, with the platform showing a 32% revenue growth while maintaining similar loss levels. Private labels are also featured more prominently on DMart Ready, which could help drive profitability in the future.

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Cost efficiency: The mantra

Three key areas help DMart keep costs low:

Employee costs: DMart relies on contract labour for store staff, warehouse staff and logistics. It also minimizes costs through simple, easily replicable store designs and energy-saving initiatives. Employee expenses remain around 1.5-1.7% of revenue.

Marketing costs: Unlike many companies, DMart doesn’t spend heavily on advertising. Instead, it relies on local ads at train stations, bus stops, and in regional newspapers, allowing word-of-mouth to drive foot traffic. This results in sticky customers who return for the quality and price, not because of flashy ads.

Efficient working capital management: One of DMart’s biggest strengths is how it handles working capital, particularly in managing its inventory and payables. The company keeps tight control over its inventory, maintaining stock for about 30 days. DMart usually focuses on fast-moving products that keep turnover high, even if some items have lower margins.

Also, unlike many retailers, DMart doesn’t stretch out payments to suppliers. Instead, it negotiates aggressively for lower prices and pays suppliers quickly. This approach has turned DMart into a preferred customer for many key suppliers.

By carrying more working capital than other retailers, DMart secures better procurement deals, which allows it to keep consumer prices low. This strategy keeps inventory levels under control, ensures better relationships with suppliers, and ultimately strengthens DMart’s position in the market as a value retailer.

Electricity savings: DMart has implemented solar panels on the rooftops of 226 of its stores, with a total capacity of 36 megawatts. Currently, 24.1% of the electricity at these locations comes from solar energy, up from 21.8% last year. Considering DMart typically spends ₹1 crore annually per store on electricity, these savings could significantly boost the company’s bottom line by ₹200- ₹250 crore, or an extra 0.3% to 0.5% profit margin.

It's worth highlighting because of the company’s focus on keeping costs in check, which can be a big moat in retail.

Bringing it all together

Earlier, we hypothesized that DMart could reach 100 store openings annually or generate over ₹80,000 crore in sales at a 5% net margin, up from the current ₹50,000 crore. Is that achievable?

Absolutely.

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DMart's revenue has grown by over 22% annually since its IPO, and by 27% annually in the last four years. As stores that were opened in the past two to three years mature and new ventures like DMart Ready continue to scale, hitting ₹80,000 crore in sales within the next three years is realistic. Around the same time, DMart’s net profit could cross ₹5,000 crore, setting the company up for even more robust growth.

Effectively, the more the DMart grows, the more it will have the potential to grow as it ploughs back the money into opening new stores.

Financially, DMart is well-positioned to fund this expansion. The main hurdle lies in finding the right real estate—suitable locations where DMart can buy space and quickly make it operational at scale. While this might slow things down a bit, it’s reasonable to expect that by 2027-28, DMart could be opening close to 100 stores annually.

Another major concern is the growing competition and the emergence of strong challengers. Quick commerce is gaining rapid momentum, particularly in densely populated urban areas, offering highly competitive prices for smaller orders that directly rival DMart Ready. Additionally, DMart faces increasing pressure from niche players in specific segments. In the affordable apparel space, brands like Zudio and V-Mart are steadily capturing market share, while Tata Sampann is making notable strides in packaged food staples. Together, these competitors challenge DMart's dominance in these key verticals.

From a valuation perspective, if we go by the 2027-28 projections that are generally available, DMart's PE ratio could land around 60, based on estimated net earnings. This is similar to the multiples seen by developed companies like Costco, which is a stable, mature business. However, DMart is still in a high-growth phase. It’s not unreasonable to expect that DMart will continue to command a premium valuation, much like other Indian market leaders such as Hindustan Unilever, Asian Paints and Pidilite.

While these are different sectors, they demonstrate how strong businesses with dominant positions and consistent growth can maintain elevated valuations. DMart may very well be one of those companies that command premium valuation for a longer period.

In the end, the question isn’t whether DMart can grow—it’s how fast they can capitalize on the opportunities ahead.

Note: We have relied on data from annual reports for this article. For forecasting, we have used our assumptions.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. The views expressed are my own and do not reflect or represent the views of my present or past employers.

Parth Parikh has over a decade of experience in finance and research, and he currently heads growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.