DMart BUY (Private Labels Rising Initiate at BUY) 20240320

DMart
Rs4,014.10 - BUY
Aditya Soman* Private labels rising, initiate at BUY

aditya.soman@clsa.com We initiate coverage on Avenue Supermarts at BUY
+91 22 6650 5058
We initiate coverage of Avenue Supermarts (DMart) at BUY. DMart is a discount
Vatsal Dujari* retailer with the lowest operating costs, which have driven the lowest consumer
+91 22 66505059 prices, in turn leading to high sales velocity and better scale, further reducing costs
*CLSA India Private Limited - a virtuous loop that allows DMart to gain market share in a price-sensitive
market. DMart is rapidly scaling its private-label assortment, which in our view will
drive the next leg of share gains. Initiate at BUY with a target price of Rs5,107.
>$500bn addressable market, less than 5% organised

20 March 2024 DMart is one of the leaders in India’s >US$500bn urban food and grocery market,
which is largely dominated by small traditional retailers. We see TAM growing to
India US$2.3trn in 25 years, with DMart’s share rising to 5% from less than 1% at present.
Consumer We see DMart stores increasing over 3x by FY34 from 341 at present as the company
expands its presence in present and new states. If DMart reaches a similar store-to-
Reuters AVEU.NS population density as Walmart, which has a store per 100,000 people in the US, we
Bloomberg DMART IS
see potential for over 7,000 DMart stores in urban India in the next 25 years.
Priced on 19 March 2024
CNX Nifty @ 21,817.5 Lowest consumer prices due to lowest operating cost
12M hi/lo Rs4,137.15/3,306.80 DMart is one of the lowest-cost retailers globally, operating on an everyday low
12M price target Rs5,107.00 cost, everyday low price model (ELDC/ELDP). With relatively low affordability
±% potential +27% across categories in India, DMart’s low prices have been a key competitive
Shares in issue 648.9m advantage, which along with consistent and efficient execution has allowed DMart
Free float (est.) 24.3% to gain market share in overall/modern grocery retail between CY14 and CY23.
Market cap US$31.4bn
Private labels should drive the next leg of share gains
3M ADV US$17.6m
Historically, DMart has underplayed the private-label opportunity so as not to be
Foreign s'holding 7.8%
seen competing with large suppliers and key brands. However, we have seen a
Major shareholders steady increase in DMart’s private-label offerings and believe private labels can be
Promoter group 74.7% a key differentiator, especially when compared with ecommerce and quick
commerce. Private brands are offered at a 20-40% discount to popular brands.
Initiate at BUY, target price Rs5,107

Blended ESG Score (%)*
We initiate coverage at BUY with a target price of Rs5,107. Our target price is based
Overall 61.1 on an equal-weighted blend of DCF and a one-year median PE multiple of 67x,
Country average 59.5 which is 1SD below DMart’s long-term average multiple of 74x (excluding Covid
GEM sector average 57.0 rerating). When valued on FY31 (discounted to FY26), DMart trades at 39s, lower
*Click to visit company page on clsa.com for details
than our significantly slower-growing coverage average of 42x. A slower than
Stock performance (%) anticipated shift from unorganised to organised retail is a risk to our view.
1M 3M 12M
Absolute 8.3 (0.2) 21.2 Financials
Relative 9.8 (1.8) (5.0) Year to 31 March 22A 23A 24CL 25CL 26CL
Abs (US$) 8.3 (0.1) 20.5 Revenue (Rsm) 303,525 418,333 495,238 643,352 787,519
Net profit (Rsm) 16,162 25,564 26,812 38,784 48,384
EPS (Rs) 24.9 39.4 41.3 59.7 74.4
CL/consensus (17) (EPS%) - - 102 117 118
EPS growth (% YoY) 38.7 58.1 4.8 44.5 24.6
PE (x) 160.9 101.8 97.2 67.2 53.9
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
FCF yield (%) (0.4) 0.2 0.3 0.1 0.3
PB (x) 18.7 15.8 13.6 11.3 9.4
ROE (%) 12.3 16.8 15.0 18.4 19.0
Net debt/equity (%) 2.4 1.5 (3.8) (5.0) (7.1)
Source: Bloomberg Source: www.clsa.com
CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) do and seek to do business with companies covered in its research reports. As such,
investors should be aware that there may be conflicts of interest which could affect the objectivity of the report. Investors should consider
this report as only a single factor in making their investment decisions. For important disclosures please refer to page 71.
Private labels rising, initiate at BUY DMart - BUY
Financials at a glance
Year to 31 March 2022A 2023A 2024CL (% YoY) 2025CL 2026CL
Profit & Loss (Rsm)

Revenue 303,525 418,333 495,238 18.4 643,352 787,519
Cogs (ex-D&A) (260,527) (357,752) (424,612) (549,030) (671,667)
Gross Profit (ex-D&A) 42,998 60,580 70,626 16.6 94,322 115,852
SG&A and other expenses (17,983) (23,986) (29,798) (36,265) (43,452)
Op Ebitda 25,015 36,594 40,829 11.6 58,057 72,400
Depreciation/amortisation (4,211) (5,433) (6,307) (7,550) (9,085)
Op Ebit 20,805 31,161 34,521 10.8 50,507 63,315
Net interest inc/(exp) 1,013 1,150 1,372 19.3 1,413 1,455
Other non-Op items 0 - 0 - -
Profit before tax 21,817 32,312 35,893 11.1 51,920 64,771
Taxation (5,656) (6,748) (9,081) (13,136) (16,387)
Profit after tax 16,162 25,564 26,812 4.9 38,784 48,384
Minority interest 0 0 0 0 0
Net profit 16,162 25,564 26,812 4.9 38,784 48,384
Adjusted profit 16,162 25,564 26,812 4.9 38,784 48,384
Cashflow (Rsm) 2022A 2023A 2024CL (% YoY) 2025CL 2026CL
Operating profit 20,805 31,161 34,521 10.8 50,507 63,315
Depreciation/amortisation 4,211 5,433 6,307 16.1 7,550 9,085
Working capital changes (6,482) (3,015) (4,782) (7,391) (8,281)
Other items (6,394) (7,950) (10,646) (14,732) (18,016)
Net operating cashflow 12,140 25,630 25,401 (0.9) 35,934 46,104
Capital expenditure (22,832) (21,313) (17,033) (33,082) (39,224)
Free cashflow (10,693) 4,317 8,368 93.9 2,852 6,879
M&A/Others 9,911 (3,109) 2,256 2,312 2,369
Net investing cashflow (12,922) (24,422) (14,776) (30,771) (36,856)
Increase in loans - - - - -
Dividends 0 0 0 0 0
Net equity raised/other (196) (174) (479) (607) (752)
Net financing cashflow (196) (174) (479) (607) (752)
Incr/(decr) in net cash (977) 1,034 10,146 881.6 4,556 8,496
Exch rate movements - - - - -
Balance sheet (Rsm) 2022A 2023A 2024CL (% YoY) 2025CL 2026CL
Cash & equivalents 835 1,868 12,014 543 16,570 25,065
Accounts receivable 2,309 2,466 2,919 18.4 3,704 4,426
Other current assets 30,368 49,040 54,842 11.8 64,059 74,201
Fixed assets 86,498 102,933 113,658 10.4 139,190 169,330
Investments - - - - -
Intangible assets 0 0 0 0 0
Other non-current assets 34,031 26,129 27,664 5.9 29,382 31,306
Total assets 154,040 182,436 211,097 15.7 252,905 304,328
Short-term debt 956 1,103 1,271 15.3 1,465 1,689
Accounts payable 5,312 7,013 8,323 18.7 10,762 13,166
Other current liabs 4,675 5,213 5,462 4.8 5,727 6,010
Long-term debt/CBs 3,203 3,292 3,384 2.8 3,478 3,575
Provisions/other LT liabs 653 790 813 3 838 862
Shareholder funds 139,241 165,025 191,844 16.3 230,635 279,025
Minorities/other equity 0 0 0 0 0
Total liabs & equity 154,040 182,436 211,097 15.7 252,905 304,328
Ratio analysis 2022A 2023A 2024CL (% YoY) 2025CL 2026CL
Revenue growth (% YoY) 27.6 37.8 18.4 29.9 22.4
Ebitda margin (%) 8.2 8.7 8.2 9.0 9.2
Ebit margin (%) 6.9 7.4 7.0 7.9 8.0
Net profit growth (%) 38.7 58.2 4.9 44.7 24.8
Op cashflow growth (% YoY) 0.2 111.1 (0.9) 41.5 28.3
Capex/sales (%) 7.5 5.1 3.4 5.1 5.0
Net debt/equity (%) 2.4 1.5 (3.8) (5.0) (7.1)
Net debt/Ebitda (x) 0.1 0.1 - - -
ROE (%) 12.3 16.8 15.0 18.4 19.0
ROIC (%) 11.5 15.8 14.6 18.6 19.7
Source: www.clsa.com
Find CLSA research on Bloomberg, Thomson Reuters, FactSet and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
20 March 2024 aditya.soman@clsa.com 2

DMart: Investment thesis

Figure 1
DMart drives a virtuous DMart’s everyday low cost/everyday low price (ELDC/ELDP) model
circle with low costs driving
low prices driving sales
velocity leading to buying
power driving costs down
further
Source: CLSA.
DMart is a discount retailer operating large-format stores and a growing ecommerce

offering. DMart’s key competitive advantage is its low cost of operations, the
benefits of which are passed on to the consumer through the lowest consumer
prices. For India’s large urban masses, DMart’s low prices and assortment are a
draw, leading to DMart’s revenue growing at a 28.7% Cagr between FY13-23,
despite the impact of Covid-19-driven store closures and lockdowns. Including the
ecommerce business, sales grew at a 29.4% Cagr over FY13-23 and we forecast a
22% Cagr over FY23-33 and a 17% Cagr over FY33-43. Our sales per store
assumptions are very low when compared with those of Walmart or Costco when
they had scale similar to DMart’s today.
Large market opportunity

DMart is one of the leaders in India’s >US$500bn urban food and grocery market,
which is largely dominated by small traditional retailers.
DMart and Reliance Retail have emerged as clear winners among offline retailers,
especially in food and grocery, where most other competitors are now significantly
smaller in scale. Despite their leadership among modern retailers, Reliance Retail
and DMart only have 1.2% and 0.5% of the overall food and grocery market, with
the majority of the market still with more than 8m traditional retailers.
We see total addressable market (TAM) growing to US$2.3trn in 25 years, with

DMart’s share rising to 5%. We see DMart stores increasing over 3x by FY34 from
341 at present as the company expands its presence in existing states and new
states. If DMart can achieve a similar store to population density as Walmart, which
has a store per 100,000 people in the US, we see potential for over 7,000 DMart
stores in urban India in the next 25 years.

However, we see new challengers emerging with quick commerce, which is scaling
up rapidly, especially in the large, densely populated cities. For small carts, quick
commerce already offers prices significantly lower than traditional retail and within
7-8% of the prices offered by DMart and Jiomart. Additionally, we also see more
intense competition from vertical challengers such as Zudio/VMart in apparel, IKEA
in home products and Tata Sampann in packaged food staples.
We believe DMart will remain a key player despite intensified competition from
quick commerce and vertical challengers for the following reasons:
1. Large food staples assortment, which is a key driver of footfall in a DMart

store. Indian home-cooked meals require key food staples like pulses,
lentils, wheat flour, cooking oil, spices and rice among others, where DMart
offers its own packed and sorted products at the lowest prices. These are
often the main draw for a consumer to a DMart store/ecommerce site, and
at present the quick commerce players do not offer these in large quantities
or with a large assortment. Also, the typical weekly/monthly quantities of
these products will be challenging for quick commerce players to deliver on
bikes.
2. DMart also offers private labels across categories, especially home and
personal care, and prices are far lower than the brands. Increasingly, our
observations suggest that these are differentiators for DMart relative to
quick commerce and traditional retail. We see older private brands being
displayed prominently and listed up on DMart Ready, indicating increased
customer uptake, in some categories with more prominent placement than
the leading brands.
3. Low cost as fulfilment is still customer-driven. Since the majority of DMart

sales are likely to remain store-driven, we expect DMart’s cost advantage
to remain intact. However, among the top urban cohorts, consumers may
choose the convenience of quick-commerce for some daily use categories.
However, for a large majority of the population, discounters like DMart and
Reliance Smart will offer the most compelling value.
Cost leadership translating to lower consumer prices

DMart’s entire business model revolves around its cost leadership, which it passes
on to the customers in the form of low prices. Three main factors drive DMart’s
cost leadership, in our view:
1. Focus on daily execution, driven by store staff, who are mostly incentivised
on cost/operational metrics and not sales. Inventory is managed very
closely, with differing levels of discounting depending on inventory ageing.
Stores are operated at the lowest possible cost by managing three key store
costs: wages for staff of contract workers, electricity and power needs and
optimising store area to maximise retail space, with storage often on high
shelves within the store. Decisions on assortment and store inventory are
delegated to the city/store manager allowing for nimble inventory
management and optimised assortment depending on local needs.

2. Sourcing scale and cluster-based expansion. DMart uses its scale to source
products at the lowest prices, often paying suppliers faster than peers in
return for lower prices. DMart also follows a cluster-based expansion
strategy for stores, which reduces overall logistics costs by increasing store
density around warehouses and suppliers. Also, localised sourcing,
especially for food staples, allows for localised assortment and lower
consumer prices.
3. Real estate ownership is also a key factor in lower costs over the long term,
especially as DMart tends to acquire low-cost real estate in anticipation of
demand increasing as it sets up the store. Its real estate acquisition strategy
has allowed it flexibility with store building standardisation as it owns the
land and the option to add retail area to a store depending on demand. For
example, the average area of a DMart store has increased significantly over
the past 10 years as it built larger new stores and added floors to existing
stores. To illustrate our point on store locations, DMart does not have a
physical large-format store in South Mumbai, where real estate prices are
very high, instead serving customers using DMart Ready and small-format
pickup points.
Private labels to expand, globally a key differentiator for retailers

We observed DMart increasing the number of private-label products over the past
year as it tied up with more suppliers across the country for the manufacturing of
exclusive brands. DMart now has exclusive brands in a wide range of categories
from laundry to home cleaners, dishwashing, room fresheners, personal wash, oral
care, hair oil, breakfast cereals, desserts, biscuits, snacks, green tea and instant
coffee, among others.
Historically DMart has underplayed the private-label opportunity so as not to be

seen competing with large suppliers and key brands. However, we have seen a
steady increase in private-label offerings from DMart and believe private labels can
be a key differentiator, especially when compared with ecommerce and quick
commerce. We see its older private brands being displayed prominently and going
head-to-head with the leading brands in the category. Private brands are offered at
a 20-40% discount to known brands despite DMart using high-quality suppliers.
Valuation demanding but very large long-term opportunity; BUY

At 53.7x FY26CL EPS, DMart’s forward PE multiple is the one of the highest in our
coverage for large-cap, steady-state businesses. However, we believe the long-term
opportunity in DMart remains intact, especially with the stock underperforming the
broader indices by c.45% since it made a peak in November 2021. We initiate
coverage with a BUY rating as we believe investor concerns around competition
from quick commerce and vertical-based players are valid but in the price.
We value DMart on an equal-weight blend between our PE-based valuation of 67x

FY26CL (1SD below its long-term average PE multiple of 74x, excluding the Covid-
driven multiple surge) and our DCF. When valued on FY31CL (discounted), DMart
trades at 39x, lower than our significantly slower-growing coverage.

So expensive…why do we not agree?

A common refrain to even mentioning DMart is the headline valuation. Yes, the
multiple is high. So is the growth opportunity. So is the consistent delivery. With a
large market potential, a clear moat on costs and a robust track record, we believe
we can look beyond the next 12 months for a stock like DMart.
In fact, in this report, we demonstrate how DMart could become the next Walmart
or Costco or Lidl, as retail in India becomes organised.
Consequently, we believe investors will always look a little bit further our on DMart
and then, with a 20% EPS Cagr, the stock looks cheaper than our coverage median.
Figure 2
DMart PE on FY31CL below FY31CL (discounted at 12% to FY23) PE

the median for our large cap
(>US$10bn) consumer
coverage
Source: CLSA
Figure 3
Sensitivity of earnings growth on discounted multiples

Earnings Cagr FY26 multiple Multiple on earnings discounted @ 12%
FY29CL FY31CL FY36CL
5% 54 65 74 102
10% 54 57 59 64
15% 54 50 47 41
20% 54 44 38 27
25% 54 39 31 18
30% 54 34 26 12
Source: CLSA
Figure 4
Sensitivity of multiple to earnings Cagr – five years out

Earnings Cagr
5% 10% 15% 20% 25% 30%
Multiple 40x 55 44 35 28 23 19
50x 69 55 44 35 29 24
60x 83 66 53 42 35 28
70x 97 77 61 50 40 33
80x 110 88 70 57 46 38
90x 124 98 79 64 52 43
Source: CLSA

DMart: >US$500bn retail opportunity

We are very positive on the long-term potential for quick commerce as evidenced
by our positive view on Zomato; we believe the market opportunity is too large for
quick commerce alone with less than 5% of the US$580bn retail market (for
categories relevant to DMart) being organised.
Figure 5
We see DMart’s market Total addressable market (TAM, US$bn) and DMart market share
share rising to 5% in 20
years and the TAM
expanding to US$2.3tn
Source: CLSA MOSPI, DMart
Figure 6
We expect DMart to 10-year sales Cagr comparison: DMart vs TAM

continue outgrowing the
market although growth
gap should diminish as
DMart’s base becomes
larger
Source: CLSA MOSPI, DMart
Investors have been concerned about the growth of ecommerce and quick
commerce and the potential implications for a big-box discounter like DMart. We
note that globally Walmart continues to grow despite Amazon gaining share in key
categories and growing even faster.

A case study of Walmart Walmart retail sales have grown despite Amazon growth (US$bn)
suggests that while Amazon
has gained share, it has not
come at the cost of
Walmart, which has
continued on its growth
path
Source: CLSA, Walmart, Amazon
DMart currently operates 347 stores across 12 states. We forecast a total of 3,404
stores by FY49 for DMart (each with an average area of 50k sqft) as it expands its
network in more states. In the USA, Walmart has over 3,500 supercentres (with an
average area of about 177k sqft), with an average density of one store per 100,000
people. Assuming a similar density for India’s urban population (by 2048), we see
potential for 7,035 DMart stores.
We note that unlike many other retail formats, affordability is not an issue for DMart
as it sells what the urban mass consumes at prices lower than traditional retail. The
average ticket at DMart is currently Rs1,621 (FY23), which compares with monthly
per capita expenditure of Rs2,601 in urban India for DMart categories.

Figure 7
Walmart has about one supercenter (178k sqft on average) per 100,000 people in the US
Source: CLSA, Walmart, US Census
We see a large opportunity for more stores in existing DMart states such as
Maharashtra, Gujarat, Karnataka, Tamil Nadu, Telangana, Andhra Pradesh, Delhi and
Punjab, which are relatively more urbanised than the rest of the country. We see
urbanisation accelerating in these states and DMart opening up stores in new cities.
We also see a large opportunity in new states with a large population where DMart
is currently not present such as Uttar Pradesh, West Bengal, Bihar and Assam,
especially as urbanisation accelerates in these states.

Figure 8
DMart has no stores in DMart stores and 2048 potential

states with large potential
such as Uttar Pradesh, West
Bengal, Kerala and Bihar
Source: CLSA, DMart
Figure 9
We believe that DMart Current store penetration as a proportion of 2048 potential at one store per 100,000 people
currently has only 5% of its
store potential by 2048 if
one assumes one store per
100,000 urban population
Source: CLSA, DMart
We believe our assumptions for store additions for DMart are relatively
conservative over the next 10 years when compared with the store additions seen
for large retailers in the USA such as Walmart or Costco and even when compared
with European retailers like Aldi, Lidl or Bim.

The main reason for our conservative store addition assumption is DMart’s extreme
focus on store-level costs, but we see management focus now shifting to
accelerating store additions.
Figure 10
Annual store additions from a similar base
Source: CLSA, Company data
We also build in only a modest acceleration in sales per store when compared with
best-in-class global retailers at this stage of their evolution, as we believe DMart
needs to create a market for its products when compared with western chains that
won over market share in an existing market.

Figure 11
No. of stores and sales per store (US$m) for DMart, Walmart and Costco
Source: CLSA, Walmart, Costco, DMart

DMart: Lowest cost big-box retailer

DMart’s main consumer draw is its everyday low prices, which are enabled by
having the lowest operating cost of any retailer. The entire organisation is cost-
focussed and designed to operate with gross margin closer to a wholesaler’s than a
retailer’s.
Our store checks suggest that most workers at DMart stores are incentivised on
cost and productivity metrics and not on sales, with sales being seen as an outcome
of cost and productivity.
Figure 12
DMart works with gross Large retailers: Sales breakdown into COGS and gross profit
profits closer to a
wholesaler like Costco than COGS Gross profit
other large-box retailers
like Walmart or Carrefour 100% 3.5
10.5 5.7
90% 14.5 19.6 18.1
23.5 21.0
80%
70%
60%
50% 96.5
89.5 94.3
40% 85.5 80.4 81.9
76.5 79.0
30%
20%
10%
0%
FY23 2023 2022 FY23 2022 FY23 2022 2022
DMART Walmart Costco Tesco Aldi UK Lidl Great Carrefour BIM
Britain
Source: CLSA, Company data

Figure 13
DMart has the lowest Large retailers: Gross profit breakdown into operating expenses and operating profit
operating costs
Source: CLSA, Companies
Figure 14
Common size income statement for big-box retailers (%)

DMart Walmart Costco Tesco Aldi UK Lidl Great Carrefour
Britain
Fiscal year FY23 2023 2022 FY23 2022 FY23 2022
Sales 100 100 100 100 100 100 100
COGS 85.5 76.5 89.5 94.3 96.5 79 80.4
Gross profit 14.5 23.5 10.5 5.7 3.5 21 19.6
SG&A 7 21 8.9 3.2 2.3 20.7 16.8
Operating profit 7.4 2.5 1.6 2.4 1.2 0.3 2.9
Source: CLSA
Figure 15
DMart maintains the lowest Operating cost breakdown (% of sales)

operating costs of any
grocery retailer and these
have been trending down
Source: CLSA DMart.

Low costs start with selection of real estate. The company prefers buying real
estate, often well in advance of its requirements. In our view, DMart has refined the
model of selection of the real estate and then execution of the store at the lowest
cost possible.
This is best illustrated by looking at a map of Mumbai, the city where DMart started
its first store. DMart has no big-box stores in South Mumbai, where real estate costs
tend to be very high but serves that area through its online stores or pickup points.
Also, as can be seen on the map below, DMart will typically build multiple stores
along a major road to lower supply chain costs.

Figure 16
There are no big box DMart DMart locations in Mumbai and Navi Mumbai
outlets in the expensive
neighbourhoods of Mumbai
highlighted with the blue
boxes
Source: CLSA Open Street Map
In our view, while upfront land purchases dilute near-term returns and profitability,
in a densely populated country with a rapidly growing urban population, the longer-
term benefits of lower occupancy costs outweigh the near-term drag on returns.
Since DMart does not need to renegotiate rentals, pricing is entirely dependent on
purchase price and inventory levels, leaving it more competitive than peers.
Other factors contributing to lower costs include very basic (and easily replicable)
store design, focus on energy consumption, especially air conditioning, use of
contract labour for store staff, warehouse staff and logistics staff and a cluster-
based strategy of building stores along supply routes to minimise distribution costs.

DMart maintains very low advertising and marketing costs, almost never advertising
nationally or on television, relying on local advertising at train stations, bus stops
or in local vernacular newspapers. This leads to a slower ramp-up of a new store,
which depends almost entirely on word of mouth to drive footfall. However, DMart
customers tend to be sticky because of focus on assortment, quality and price.
New DMart stores are utilising rooftop space to install solar panels to reduce energy
costs at the store: 191 DMart buildings have been green certified, achieving
Platinum or Gold certification under US Green Building Council (USGBC) or the
Indian Green Building Council (IGBC), with one Platinum certification, 189 gold
certifications and one silver certification as of FY23, with all new stores being green
building certified. The factors that have driven these certifications include (1)
energy efficiency measures such as using solar energy (DMart has commissioned
190 solar plants), efficient lighting, efficient air conditioning, energy monitoring
systems and natural gas generators; (2) water conservation with 144 stores having
sewage treatment plants to re-use water, pressure washers, rainwater harvesting
and water-efficient fixtures; (3) use of sustainable building materials and (4)
sustainable products.
Figure 17
59% of DMart stores are DMart: Green certified stores and total stores
green certified by the
IGBC/USGBC as of FY23
Source: CLSA, DMart

Figure 18
DMart now meets 22% of Solar sites, stores and solar capacity (MW, RH axis)
its energy needs at 190
stores through solar energy,
with 40 stores meeting over
50% of electricity
requirement through solar
energy
Source: CLSA, DMart.
Figure 19
DMart is utilising rooftop Rooftop solar panels and carports

solar panels at new stores
to lower energy costs and
limit environmental impact
Store management at DMart is localised with store manager and employee

incentives largely based on cost and efficiency metrics and rarely on sales metrics.
The entire organisation is geared towards saving on costs or improving efficiency,
leading to tangible benefits across every expense line when compared with peers.
DMart almost always hires local staff at stores at each location, since this improves
assortment and ability to connect with the local consumer.

Figure 20
Land cost is about half of Land (Rsm), Gross fixed assets (Rsm) and land as a proportion of gross fixed assets
gross fixed assets at DMart
Source: CLSA, DMart
Figure 21
ROE excluding land was The upfront purchase of land drags ROE while the company is in the growth phase
25% in FY23, compared
with 17% including the cost
of land
Source: CLSA, DMart

Figure 22
Asset turns have not Asset turns (assets at cost), equity multiplier and net profit margin (RH axis)
recovered from a drop
during Covid, when sales
were impacted by stores
remaining closed in the
lockdowns
Source: CLSA
Another key reason for DMart’s success in India has been its control over working
capital, especially inventory and payables. DMart tends to maintain inventory of
about 30 days and this is a key performance indicator (KPI) for store managers and
a determinant of pricing variation between stores.
DMart maintains a tight inventory with relatively limited SKUs and products,
choosing to stock only fast-moving products, even if they carry a lower margin.
DMart tends to have lower payables than other retailers in India as it negotiates
primarily for lower prices with suppliers and chooses to release payments quickly.
This strategy has allowed DMart to become a preferred customer for a lot of key
suppliers, who in the past have faced issues with receivables from retailers.
This means that DMart carries significant working capital but makes up for it in the
form of lower procurement prices and therefore lower consumer prices, which
allows inventories to remain in check.

Figure 23
Walmart inventory days Inventory days (1972-2023)

shrunk after a pivot
towards food and grocery
Figure 24
Walmart, Costco and DMart Inventory days (2013-2023)

keep inventory in a tight
band (Covid-19 lockdowns
distorted 2021-2022)

Exclusive brands beyond DMart grocery

DMart’s grocery brand Premia is a major draw for customers to a Dmart store,
offering significantly lower prices than the neighbourhood store while offering
consumers cleaned and packed products. Prices when compared with brands such
as Tata Sampann are also significantly lower. The product assortment is localised to
each neighbourhood, which is a key differentiator for DMart when compared with
other retailers or ecommerce.
Globally, private labels are a significant part of fast-moving consumer goods

(FMCG) sales, with 26% of FMCG retail sales in Europe, 15% in the USA and 16%
in Australia and about 10% worldwide. Private brand sales are lower in Japan (about
7%) and China (about 1%), where shares of the largest retailers are lower than in
the west.
Figure 25
Private labels account for Private-label share of FMCG sales

almost a quarter of FMCG
sales in Europe
Source: CLSA, Euromonitor

Figure 26
DMart consistently offers Prices for lentils and pulses

among the lowest prices
(Reliance offers even lower
prices) for pulses and
lentils, which are staples in
each household.
Source: CLSA, DMart

Figure 27
DMart offers lowest prices Prices for Tata Sampann products across ecommerce platforms
for Tata Sampann products
Source: CLSA, DMart, Jiomart, Blinkit, Zepto, Amazon
However, we see DMart’s exclusive brands extending beyond basic food and
grocery to multiple consumer staples categories. As we note below, DMart’s
exclusive brands or private labels now compete with every consumer staples
company under our coverage across food and beverages, home care, personal care
and even beauty.
DMart now has exclusive brands in a wide range of categories from laundry to home
cleaners, dishwashing, room fresheners, personal wash, oral care, hair oil, breakfast
cereals, desserts, biscuits, snacks, green tea and instant coffee, among others.
In most cases, these brands are priced well below the leading brands and are
increasingly competing in premium categories, offering consumers a more
affordable upgrade path.
DMart has a wide range of suppliers for its private brands across multiple states.
We note that the more mature brands like Force 10 or Sparkle have a larger number
of suppliers, indicating greater demand and penetration across different DMart
locations.

Figure 28
On average DMart private Average discount to brand prices on DMart

labels are at a 31% discount
to competing brands’ prices
on DMart (which are a
further 15-20% below list
prices)
Source: CLSA, DMart
Figure 29
DMart exclusive brands and key competitors

Brand Category Competitor to
Home Chef Prepared dishes Maggii (Nestle), Kissan (Hindustan Unilever)
Le Café Coffee Bru (Hindustan Unilever), Nescafe (Nestle)
Reflect Dishwash Vim (Hindustan Unilever)
Mild & Clear Glycerine soap Pears (Hindustan Unilever)
Sparkle Cleaner Domex (Hindustan Unilever), Colin (Reckitt), Harpic (Reckitt), Lizol (Reckitt)
Star Bright Detergent powder Rin (Hindustan Unilever), Tide Naturals (P&G)
Chandan Sparsh Soaps
CleanPlus Toilet paper
Oraldent Toothbrush Colgate, P&G
Hand Aid Handwash Dettol (Reckitt), Lifebuoy (Hindustan Unilever), Godrej, Savlon (ITC), Santoor (Wipro)
Nutri Delite Cereals Saffola (Marico), Kellogg's, Quaker
Coconourish Coconut oil Parachute (Marico), Dabur, Bajaj
Grace Soaps Lux (Hindustan Unilever), Godrej, Santoor (Wipro)
Bisky Bites Biscuits Britannia, Sunfest (ITC), Parle
Royal Toast Toast Britannia
House Coffee Instant Coffee Bru (Hindustan Unilever), Nescafe (Nestle)
Sof N Fluffy Fabric Conditioner Comfort (Hindustan Unilever), Wipro
Meadows Air freshener Odonil (Dabur), Aer (Godrej)
Mango Merry Fruit drink Slice (Pepsi), Maaza (Coke), Frooti (Parle)
Force 10 Toilet cleaner Harpic (Reckitt)
Tea Country Green Tea Tetley (Tata Consumer), Lipton (Unilever), Organic India (Tata Consumer)
Source: CLSA, DMart

Figure 30
DMart exclusive brands – manufacturers and locations

Brand Manufacturer info
Home Chef Malas Food - Maharashtra, Pacific Global - Madhya Pradesh, Naga Limited, Tamil Nadu
Le Café Tata Coffee - Telangana
Reflect Concept Hygiene - Gujarat, Kaps Hygiene - Maharashtra, Rossari Biotech - D&N Haveli
Mild & Clear Siyon Consumer Care - Gujarat, Vinod Kumar - Uttarakhand
Sparkle Concept Hygiene - Gujarat, Kaps Hygiene - Maharashtra, Hindustan Foods - D&N Haveli, Sans Soaps &
Detergents - Karnataka
Star Bright Jubilee Industries - Maharashtra, Hitkari Gram Udyog Sangh - Haryana
Chandan Sparsh Neema Soaps - Maharashtra, Alliance World Manufacturing - Himachal Pradesh
CleanPlus Vijay Anand Specialty - Telangana, Tainwala Personal Care - Telangana
Oraldent Jewel Consumer Care - Gujarat
Hand Aid Renewal Industries - Maharashtra, Rossari Biotech - D&N Haveli
Nutri Delite Kayem Foods - Haryana
Coconourish CNO Industries - Tamil Nadu
Grace Neema Soaps - Maharashtra, Alliance World Manufacturing - Himachal Pradesh
Bisky Bites Disha Foods - Telangana
Royal Toast Skyline Foods - Maharashtra, Eastern Agro Foods - Maharashtra
House Coffee Tata Coffee - Telangana
Sof N Fluffy Concept Hygiene - Gujarat, Sans Soaps & detergents - Karnataka
Meadows Rubicon Formulations - Maharashtra, Aroma De France - Gujarat
Mango Merry Malas Food Products - Maharashtra
Force 10 Concept Hygiene - Gujarat, Kaps Hygiene - Maharashtra, Hindustan Foods - D&N Haveli, Sans Soaps & detergents
- Karnataka, Paclean Ventures - Karnataka
Tea Country Swiss Singapore - West Bengal
Source: CLSA, DMart

Figure 31
Typical economics for DMart private-label detergent compared with the leading brand (Rs)
Leading Private Comment
brand label
MRP 196 185
DMart selling price 182 129
Selling price to DMart 157 129 Assuming DMart makes a 12-15% gross
margin
DMart gross margin (%) 14% 0%
Manufacturing cost (78) (94) Lower scale leading to higher unit cost
and manufacturer margin
Advertising and marketing cost (24) - No advertising for private label
Other overheads (16) (16) We assume similar overheads
Ebitda 39 19
Gross margin 150.0% 172.9%

Ebitda margin 25.0% 14.9%
Source: CLSA
Figure 32
Typical economics for DMart private-label biscuit compared with the leading brand (Rs)
Leading Private Comment
brand label
MRP 40 24
DMart selling price 26 24
Selling price to DMart 23 24 Assuming DMart makes a 12-15% gross
margin
DMart gross margin (%) 13% 0%
Manufacturing cost (14) (17) Lower scale leading to higher unit cost
and manufacturer margin
Advertising and marketing cost (2) - No advertising for private label
Other overheads (2) (2) We assume similar overheads
Ebitda 5 5
Gross margin 160.0% 170.6%

Ebitda margin 20.0% 20.0%
Source: CLSA

Store economics
Typically DMart prefers buying land and building stores to its requirements, which
helps standardise store operations and utilise prior learnings.
We believe non-metro DMart stores break even on store capex (except land cost)
within three years despite a relatively slow ramp to company average levels as
DMart does not advertise heavily, although new store openings are advertised in
local newspapers, billboards and at transit hubs. After including land acquisition
costs, we expect stores to break even in between eight and 10 years.
Figure 33
Store economics – non-metro store

Store economics for a non-metro store
Rsm
Capex (ex land) 100
Land cost (non-metro) 1,000
Total capex 1,100
Payback (ex. land) 2.5 years
Payback (incl. land) 9 years
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12
Sales 548 843 1,062 1,337 1,612 1,856 2,039 2,226 2,417 2,609 2,801 2,988
YoY 54% 26% 26% 21% 15% 10% 9% 9% 8% 7% 7%
Orders per day 1,000 1,400 1,680 2,016 2,318 2,550 2,678 2,798 2,910 3,012 3,102 3,180
YoY 40% 20% 20% 15% 10% 5% 4.5% 4.0% 3.5% 3.0% 2.5%
AOV (Rs) 1,500 1,650 1,733 1,817 1,905 1,994 2,086 2,180 2,276 2,374 2,473 2,575
YoY 10.0% 5.0% 4.9% 4.8% 4.7% 4.6% 4.5% 4.4% 4.3% 4.2% 4.1%
Gross margin 15.0% 15.0% 14.9% 14.9% 14.8% 14.8% 14.7% 14.7% 14.6% 14.6% 14.5% 14.5%
Gross profit 82 126 158 199 239 274 300 326 353 380 406 432
Operating cost 51 58 64 70 77 83 88 94 100 106 112 119
Wages 43 45 48 50 53 55 58 61 64 67 70 74
Workers 120 120 120 120 120 120 120 120 120 120 120 120
Wages 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.51 0.53 0.56 0.59 0.62
YoY 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Others 8.2 12.6 15.9 20.1 24.2 27.8 30.6 33.4 36.3 39.1 42.0 44.8
% of sales 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Operating profit 31 68 95 129 162 191 211 232 253 274 294 313
Operating margin 5.6% 8.1% 8.9% 9.6% 10.0% 10.3% 10.4% 10.4% 10.5% 10.5% 10.5% 10.5%
Depreciation - 10% 10 10 10 10 10 10 10 10 10 10 10 10
Profit before tax 21 58 85 119 152 181 201 222 243 264 284 303
Tax @ 25% 5 15 21 30 38 45 50 55 61 66 71 76
Profit after tax 16 44 64 89 114 136 151 166 182 198 213 227
Cash profit 26 54 74 99 124 146 161 176 192 208 223 237
Source: CLSA.

On the other hand, in metros where DMart has a presence like Mumbai or
Bengaluru, we expect the stores to break-even on non-land capex in less than 2
years. However, land cost in metros is significantly higher and we’d expect a break-
even on total capex including land in 10-12 years.
Figure 34
Store economics – metro store (Mumbai)

Store economics for a metro store
Rsm
Capex (ex land) 125
Land cost (non-metro) 3,750
Total capex 3,875
Payback (ex. land) 1.5
years
Payback (incl. land) 11 years
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12
Sales 1,460 2,031 2,559 3,087 3,720 4,285 4,706 5,139 5,580 6,023 6,465 6,898
YoY 39% 26% 21% 21% 15% 10% 9% 9% 8% 7% 7%
Orders per day 2,000 2,600 3,120 3,588 4,126 4,539 4,766 4,980 5,179 5,361 5,522 5,660
YoY 30% 20% 15% 15% 10% 5% 4.5% 4.0% 3.5% 3.0% 2.5%
AOV (Rs) 2,000 2,140 2,247 2,357 2,470 2,586 2,705 2,827 2,951 3,078 3,208 3,339
YoY 7.0% 5.0% 4.9% 4.8% 4.7% 4.6% 4.5% 4.4% 4.3% 4.2% 4.1%
Gross margin 15.0% 15.0% 14.9% 14.9% 14.8% 14.8% 14.7% 14.7% 14.6% 14.6% 14.5% 14.5%
Gross profit 219 304 381 458 551 632 692 753 815 876 937 997
Operating cost 68 79 89 100 112 123 132 142 152 162 172 182
Wages 46 48 51 53 56 59 62 65 68 71 75 79
Workers 120 120 120 120 120 120 120 120 120 120 120 120
Wages 0.384 0.40 0.42 0.44 0.47 0.49 0.51 0.54 0.57 0.60 0.63 0.66
YoY 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Others 21.9 30.5 38.4 46.3 55.8 64.3 70.6 77.1 83.7 90.3 97.0 103.5
% of sales 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Operating profit 151 225 292 359 439 509 559 611 663 715 765 814
Operating margin 10.3% 11.1% 11.4% 11.6% 11.8% 11.9% 11.9% 11.9% 11.9% 11.9% 11.8% 11.8%
Depreciation - 10% 13 13 13 13 13 13 13 13 13 13 13 13
Profit before tax 139 212 280 346 426 496 547 598 650 702 753 802
Tax @ 25% 35 53 70 87 107 124 137 150 163 176 188 200
Profit after tax 104 159 210 260 320 372 410 449 488 527 565 601
Cash profit 116 172 222 272 332 385 423 461 500 539 577 614
Source: CLSA

Why do we not worry about Reliance Retail?

Reliance Retail is the largest retailer in India and also the largest food and grocery
retailer. In categories where they compete (grocery and apparel), Reliance Retail is
likely to report revenue of Rs1,326bn in FY24CL, over 2.5x DMart’s. In terms of
overall footprint, Reliance Retail had almost 5x the store area as DMart and over
50x as many stores as of FY23. The store area gap has widened from about 4x in
FY21.
In our view, Reliance and DMart truly overlap only in grocery. As we note above,
we see potential for both to grow as the organised market in India grows. We note
that since the acceleration in growth at Reliance, there has been no significant
impact on growth for DMart.
Figure 35
Reliance’s grocery business Sales (Rsbn)

is double the size of
DMart’s
Source: CLSA Reliance, DMart
Figure 36
Reliance has 5x the store Store area (mn sqft)

area as DMart
Source: CLSA Reliance, DMart

What are global parallels for grocery retail shares?

In general, the top-three players tend to dominate grocery retail in the developed
markets, especially in North America and Western Europe, with shares between
32% in Turkey to 61% in Germany. In Japan and Thailand, too, the top-three players
have over 35% market share. However, in China and India, the market is far more
fragmented, with the top-three players having less than 3% market share. We see
a gradual consolidation in these two markets, too, and expect players like DMart
and Reliance Retail to lead the charge in India.
Figure 37 Figure 38
Global – share of leader and top-5 players USA – share of leader and top-5 players
Source: CLSA, Euromonitor Source: CLSA, Euromonitor
Figure 39 Figure 40
UK – share of leader and top-5 players Germany – share of leader and top-5 players
Figure 41 Figure 42
France – share of leader and top-5 players Turkey – share of leader and top-5 players

Figure 43 Figure 44
Japan – share of leader and top-5 players China – share of leader and top-5 players
Figure 45 Figure 46
Thailand – share of leader and top-5 players India – share of leader and top-5 players

Case study: BIM (Turkey): How to win in a bazaar?

BİM Birleşik Mağazalar A.Ş has the highest market share in organised retail in
Turkey. It started its operations with 21 stores in 1995. BİM’s operating model is to
provide consumers with the basic food items and consumer goods, combining
quality and affordable prices. It is the pioneer of the hard-discount model in Turkey,
BİM’s product portfolio includes around 850 items including a wide range of
private-label products.
Figure 47 Figure 48
BIM operates over 11,000 BIM – no. of stores BIM – sales growth
discount stores, with sales
growth averaging 30% over
19 years
Source: CLSA, BIM Source: CLSA, BIM
Figure 49 Figure 50
Sales per store averaged BIM - sales per average store BIM – private-label mix
10% per year before the
inflation-led spike. BIM
maintains private-label mix
of 60%-70%.
Figure 51 Figure 52
Gross margin typically BIM – gross margin BIM – Ebitda margin

ranges 16%-18%, while
Ebitda margin ranges
between 5%-9%

Case study: Costco: winning despite Walmart

Costco operates membership warehouses based on the concept that offering
members low prices on a limited assortment of branded and private-label products
in a large range of merchandise categories will drive high sales volumes and rapid
inventory turnover. DMart’s EDLC/EDLP model was inspired by Costco, with low
gross margins, high inventory turns and low operating costs. In FY23. Costco had
total revenue of US$237.7bn across 861 warehouses.
Figure 53 Figure 54
Costco has added 757 Costco - number of warehouses Costco – comp sales growth (avg. 6%)
warehouses since FY89
while averaging 6% comp
sales growth
Source: CLSA, Costco Source: CLSA, Costco
Figure 55 Figure 56
Costco operates with 10- Costco – gross margin Costco- operating margin
12% gross margin and 3-4%
operating margin
Figure 57 Figure 58
Sales per warehouse are Costco – sales per average store (US$m) Costco – gross margin less operating margin
about US$280m

DMart: Key metrics and financials

We assume DMart’s total store presence will widen from 324 stores at the end of
FY23 (341 stores as of December 31, 2023) to 544 stores by FY27 and 2,714 stores
by FY49. We forecast same-store sales Cagr of 8.3% between FY23-27 and 5.7%
between FY27-49. Consequently, we assume store sales to rise from Rs418bn in
FY23 to Rs978bn in FY27 and Rs21,667bn in FY49.
DMart passes on most of its cost benefit to customers and we build in gross margin
expansion only to prior peaks over a 25-year period, largely driven by higher mix
for general merchandise.
Figure 59
In FY49CL, DMart should DMart sales (Rsbn) and market share in relevant categories
have only 6.5% market
share in relevant categories
Source: DMart, CLSA
Figure 60
Sales/sqft has been volatile DMart sales/sqft of retail area and year-on-year change
post Covid lockdowns but
we expect a steady increase
until FY33
Source: DMart, CLSA

Figure 61
We forecast an acceleration Store additions per year

in new store additions
Source: DMart filings, CLSA
Figure 62
DMart has been opening Store area (mn sqft, left axis) and area per store (sqft, right axis)
larger stores, leading to
accelerated retail area
addition
Source: DMart filings, CLSA

Figure 63
Stores used for same-store Sales contribution by store vintage (CL estimates)
sales (SSS) likely to
contribute to more than
98% of sales as DMart’s
footprint has expanded
Source: CLSA
Figure 64
We forecast gross margin to DMart - gross margin (%) and Ebitda margin (%)
gradually increase to prior
peak as general
merchandise mix rises,
Source: DMart, CLSA

Figure 65
DMart has the lowest gap DMart – gap between gross and Ebitda margins (%) (CL estimates for forward years)
between gross and Ebitda
margins and we forecast
continuous reduction
Source: DMart, CLSA
Figure 66
Cost of goods sold and Sales breakdown into key costs and Ebitda
contract worker costs are
the largest costs
Source: DMart, CLSA

Figure 67
We expect inventory days Working capital days

to stabilise at about 30 and
payable days at seven
Source: DMart, CLSA
Figure 68
Summary profit and loss statement (Rsm)

FY22 FY23 FY24CL FY25CL FY26CL
Sales 303,525 418,333 495,238 643,352 787,519
YoY (%) 27.6 37.8 18.4 29.9 22.4
Cost of goods sold (260,527) (357,752) (424,612) (549,030) (671,667)
Gross profit 42,998 60,580 70,626 94,322 115,852
Margin 14.2 14.5 14.3 14.7 14.7
Employee cost (5,482) (6,482) (7,978) (9,311) (10,731)
Other expenses (12,501) (17,505) (21,820) (26,954) (32,721)
Ebitda 25,015 36,594 40,829 58,057 72,400
Margin 8.2 8.7 8.2 9.0 9.2
Depreciation and amortization (4,211) (5,433) (6,307) (7,550) (9,085)
Ebit 20,805 31,161 34,521 50,507 63,315
Margin 6.9 7.4 7.0 7.9 8.0
Other income 1,409 1,631 1,843 1,898 1,955
Finance cost (396) (481) (471) (485) (500)
PBT 21,817 32,312 35,893 51,920 64,771
Margin 7.2 7.7 7.2 8.1 8.2
Tax (5,656) (6,748) (9,081) (13,136) (16,387)
PAT 16,162 25,564 26,812 38,784 48,384
Source: CLSA, DMart
We expect sales growth to pick up in FY25CL as DMart benefits from the

inflationary cycle. We expect a slight improvement in gross margins by 50bps and
Ebitda margins to reach 9.2% by FY26.

Figure 69
Summary balance sheet (Rsm)

FY22 FY23 FY24CL FY25CL FY26CL
Gross PP&E 89,320 112,139 128,923 161,749 200,710
Accumulated depreciation (13,554) (17,495) (23,802) (31,353) (40,438)
Net PP&E 75,766 94,644 105,121 130,396 160,272
CWIP 10,731 8,289 8,538 8,794 9,058
Right of use asset 11,465 12,836 14,371 16,089 18,013
Investment properties 961 785 785 785 785
Intangible assets 95 100 100 100 100
Investments 5,323 7,747 7,747 7,747 7,747
Other non-current financial assets 12,586 1,008 1,008 1,008 1,008
Income tax assets (net) 7 151 151 151 151
Other non-current assets 3,594 3,502 3,502 3,502 3,502
Total non-current assets 120,528 129,062 141,322 168,572 200,636
Inventories 25,869 30,556 36,266 45,388 55,435

Financial investments - 2,022 2,022 2,022 2,022
Receivables 2,309 2,466 2,919 3,704 4,426
Cash and cash equivalents 835 1,868 12,014 16,570 25,065
Other bank balances 2,009 11,860 11,860 11,860 11,860
Other current financial assets 1,071 3,185 3,248 3,313 3,380
Other non-current assets 1,420 1,418 1,446 1,475 1,505
Total current assets 33,511 53,374 69,775 84,332 103,692
Total assets 154,040 182,436 211,097 252,905 304,328
Equity share capital 6,478 6,483 6,489 6,496 6,502

Reserves 132,763 158,543 185,355 224,139 272,523
Total equity 139,241 165,025 191,844 230,635 279,025
LT debt - - - - -
Lease liability 3,203 3,292 3,384 3,478 3,575
Other non-current financial 4 5 5 5 5
liabilities
Deferred tax liabilities 648 785 809 833 858
Total non-current liabilities 3,856 4,082 4,197 4,316 4,438
ST debt - - - - -
Lease liability 956 1,103 1,271 1,465 1,689
Trade payables 5,312 7,013 8,323 10,762 13,166
Other current financial liabilities 2,704 2,733 2,815 2,900 2,987
Other current liabilities 523 1,166 1,201 1,237 1,274
Provisions 334 461 507 557 613
Current tax liabilities (net) 1,114 854 939 1,033 1,136
Total current liabilities 10,943 13,329 15,056 17,955 20,866
Total equity and liabilities 154,040 182,436 211,097 252,905 304,328
Source: CLSA, DMart
The major reason for the increase in total assets is the store additions, which we
expect to pick up pace. Dmart has purchased land, which sits on its books, and it
will use that to expand its store network.
We expect no significant increase in debt as the company generates enough free

cash to take care of its expansion.

DMart: Valuation
At 79x, DMart is trading at an 8% discount to its average 12-month forward PE
multiple since listing in March 2017. We believe part of the recent de-rating has
been led by the normalisation of multiple, which had been elevated as earnings fell
due to the Covid-19 lockdowns, which had a disproportionate impact on DMart due
to stores remaining shut.
Figure 70
DMart is currently trading DMart – rolling 12-month forward PE multiple

below is average 12-month
forward multiple
Source: Bloomberg, CLSA
Figure 71
DMart trading below DMart – rolling 12-month forward PE multiple (average ex. period between Mar-21 - Mar-22)
average even after
excluding Covid-19-driven
valuation spike
Source: CLSA, Bloomberg
At 53.7x FY26CL EPS, DMart’s forward PE multiple is the one of the highest in our
coverage for large-cap, steady-state businesses. However, we believe the long-term
opportunity in DMart is intact, especially with the stock underperforming the
broader indices by 45% since it made a peak in November 2021. We initiate
coverage with a BUY rating as we believe investor concerns around competition
from quick commerce and vertical-based players are valid but in the price.

Figure 72
DMart’s valuation premium Premium to global retailers

to global retailers at lowest
point since its IPO
Source: CLSA, Bloomberg
We initiate coverage at BUY with a target price of Rs5,107. Our target price is based
on an equal-weighted blend of DCF and a one-year median PE multiple of 67x,
which is 1SD below DMart’s long-term average multiple of 74x (excluding Covid
rerating).
Figure 73
Calculation of target price

PE-based (Rs) 4,879
DCF-based (Rs) 5,336
Target price (Rs) 5,107
Source: CLSA
Relative valuation
We use a 67x multiple on March 2026CL EPS to get our relative valuation. The PE
multiple of 67x is 1SD below DMart’s long-term average multiple of 74x (excluding
Covid rerating). We use a discount to capture the impact from quick commerce.
Figure 74
Relative valuation
FY26 EPS – standalone (Rs) 74.45
FY26 EPS - DMart Ready (Rs) (1.63)
FY26 EPS – total (Rs) 72.82
Multiple 67x
Relative valuation (Rs) 4,879
Source: CLSA
Discounted cashflow
For our DCF, we have 25 years of explicit forecasts. We use a risk-free rate of 7%,
a market risk premium of 5.25% and a beta of 1.106. Our risk free rate and market
risk premium are in line with the rest of our coverage. Our weighted average cost
of capital is 12.5%. The capital structure has 5% debt – for which we use a 9% cost
of debt (6.8% post tax cost of debt). We use a terminal growth rate of 4% after the
25 years of explicit forecasts, which is in line with our forecast for long-term real
GDP growth in India. We expect a 21% sales Cagr between FY25CL and FY30CL
and we expect revenue growth to taper down to 12% by FY49CL. We expect Ebitda
margin to increase to 11.5% by FY49CL from 8.2% currently. We expect an

increasing share of private labels to be accretive for overall margins over the long
term.
Figure 75
Financial projections – FY24CL to FY32CL (Rsm)

FY24CL FY25CL FY26CL FY27CL FY28CL FY29CL FY30CL FY31CL FY32CL
Revenue 495,238 643,352 787,519 947,364 1,139,268 1,380,121 1,675,783 2,039,178 2,479,213
% YoY 18% 30% 22% 20% 20% 21% 21% 22% 22%
Ebitda 40,829 58,057 72,400 87,678 105,757 128,721 157,189 192,779 236,864
Margin 8% 9% 9% 9% 9% 9% 9% 9% 10%
% YoY 12% 42% 25% 21% 21% 22% 22% 23% 23%
Less: Depreciation (6,307) (7,550) (9,085) (10,739) (12,687) (15,093) (17,991) (21,485) (25,625)
Ebit 34,521 50,507 63,315 76,939 93,070 113,628 139,198 171,294 211,239
Less: Cash tax paid (8,734) (12,778) (16,019) (19,466) (23,547) (28,748) (35,217) (43,337) (53,443)
Plus: Change in working capital (4,782) (7,391) (8,281) (9,116) (11,030) (13,827) (16,942) (20,781) (25,103)
Less: Capital expenditure (17,033) (33,082) (39,224) (45,372) (51,640) (58,029) (64,543) (68,138) (71,800)
Free cashflow 10,280 4,806 8,877 13,725 19,541 28,116 40,487 60,523 86,518
Source: CLSA
Figure 76

FY33CL FY34CL FY35CL FY36CL FY37CL FY38CL FY39CL FY40CL FY41CL
Revenue 3,006,201 3,610,620 4,300,413 5,084,030 5,970,433 6,969,094 8,089,998 9,343,633 10,740,983
% YoY 21% 20% 19% 18% 17% 17% 16% 15% 15%
Ebitda 291,055 354,002 426,749 510,431 606,279 715,624 839,901 980,582 1,139,302
Margin 10% 10% 10% 10% 10% 10% 10% 10% 11%
% YoY 23% 22% 21% 20% 19% 18% 17% 17% 16%
Less: Depreciation (30,471) (35,875) (41,869) (48,482) (55,740) (63,670) (72,293) (81,627) (91,686)
Ebit 260,584 318,126 384,880 461,949 550,539 651,954 767,608 898,955 1,047,616
Less: Cash tax paid (65,928) (80,486) (97,375) (116,873) (139,286) (164,944) (194,205) (227,436) (265,047)
Plus: Change in working (29,983) (34,266) (38,966) (44,108) (49,713) (55,805) (62,406) (69,539) (77,224)
capital
Less: Capital expenditure (75,529) (79,327) (83,194) (87,132) (91,141) (95,223) (99,379) (103,610) (107,916)
Free Cashflow 119,616 159,923 207,214 262,319 326,139 399,651 483,910 579,997 689,115
Source: CLSA
Figure 77

FY42CL FY43CL FY44CL FY45CL FY46CL FY47CL FY48CL FY49CL
Revenue 12,293,513 14,013,151 15,912,265 18,003,636 20,300,424 22,816,129 25,564,550 28,532,626
% YoY 14% 14% 14% 13% 13% 12% 12% 12%
Ebitda 1,317,811 1,517,972 1,741,769 1,991,304 2,268,800 2,576,596 2,917,153 3,289,012
Margin 11% 11% 11% 11% 11% 11% 11% 12%
% YoY 16% 15% 15% 14% 14% 14% 13% 13%
Less: Depreciation (102,480) (114,012) (126,281) (137,477) (148,926) (160,536) (172,205) (183,638)
Ebit 1,215,331 1,403,960 1,615,488 1,853,827 2,119,874 2,416,060 2,744,948 3,105,374
Less: Cash tax paid (307,479) (355,202) (408,719) (469,018) (536,328) (611,263) (694,472) (785,660)
Plus: Change in working capital (85,480) (94,326) (103,777) (113,848) (124,552) (135,897) (147,891) (159,040)
Less: Capital expenditure (112,299) (116,760) (121,301) (125,922) (130,624) (135,409) (140,277) (145,231)
Free Cashflow 812,553 951,684 1,107,973 1,282,516 1,477,296 1,694,027 1,934,512 2,199,081
Source: CLSA

Figure 78
DCF assumptions and results (Rsm)

Terminal growth rate 4.00%
Risk free rate 7.00%
Expected market return 12.25%
Equity risk premium 5.25%
Beta 1.106
Cost of equity 12.81%
Cost of debt 9.0%
Post-tax cost of debt 6.8%
WACC 12.5%
Debt as a portion of total capital 5%
Estimated terminal free cashflow 2,287,044

Terminal value (as at 31 Mar 2049) 26,894,778
NPV of terminal value (as at 13 Mar 2024) 1,491,588
DCF valuation
NPV of forecasts (Rsm) 1,818,611
NPV of terminal value (Rsm) 1,491,588
Enterprise value (Rsm) 3,310,200
Less debt/add cash (as at 31 Mar 2024) 7,359
Equity value 3,302,841
Number of shares (m) 649
Per share equity value 5,092
Add: per share value for Dmart Ready 244
Fair value as per DCF 5,336
Source: CLSA
We use a separate DCF for Dmart Ready – Dmart’s online business. We use the
same DCF assumptions as we do for Dmart and come to a value per share of Rs244.
Figure 79
Valuation comparison across our coverage
Source: CLSA

ESG
Being completely cost-focussed helps DMart take steps to promote sustainability
as well. Its belief is that sustainability should be intrinsic to the business model and
unless there is a clear economic model for sustainability, it will not last long. It has
appointed a Sustainability Officer who is responsible for a periodic review of
material issues, scanning the external environment for evolving sustainability trends
and regulations, monitoring the progress on sustainability targets and facilitating in
implementing sustainability initiatives.
Key risks
Higher-than-anticipated competitive intensity and success of key challengers would
be the biggest risks to DMart. We see new challengers emerging with quick
commerce, which is scaling up rapidly, especially in the large, densely populated
cities. For small carts, quick commerce already offers prices significantly lower than
traditional retail and within 7-8% of the prices offered by DMart and Jiomart.
Additionally, we also see more intense competition from vertical challengers such
as Zudio/VMart in apparel and IKEA in home products and Tata Sampann in
packaged food staples.

Investment thesis
DMart is a discount retailer with the lowest operating costs, which drives the lowest
consumer prices, in turn leading to high sales velocity and better scale, further
reducing costs - a virtuous loop that allows DMart to gain market share in a price-
sensitive market. DMart is rapidly scaling its private-label assortment, which in our
view will drive the next level of share gains.
Catalysts
The inflation cycle works well for DMart as its consumers become more price-
sensitive and its top-line growth looks stronger with a component of inflation also
coming in. We expect the inflation cycle to benefit DMart in FY25. Historically
DMart has underplayed the private-label opportunity so as not to be seen
competing with large suppliers and key brands. However, we have seen a steady
increase in private-label offerings by DMart and believe private labels can be a key
differentiator, especially when compared with ecommerce and quick commerce.
Valuation details
Our target price is based on an equal-weighted blend of DCF and a one-year median
PE multiple of 67x, which is 1SD below DMart’s long-term average multiple of 74X
(excluding Covid rerating). For our DCF, we have 25 years of explicit forecasts. We
use a risk-free rate of 7%, a market risk premium of 5.25% and a beta of 1.106. Our
weighted average cost of capital is 12.5%.
Investment risks
Increased competition from quick-commerce is a key risk. Protests from
unorganised kirana stores causing damage to existing stores can also be a key risk
and this could limit expansion plans as well.
Figure 80
Earnings and balance-sheet risk scores (lower the better)

Score Comments
Earnings-quality flags
Capex indiscipline 0
Cash burn 0
Rising non-core or intangibles 0
Rising working capital 0
Poor cash conversion 0
Earnings-quality risk score (EQRS) 0/5
Balance-sheet-quality flags
Cash burn 0
Excessive leverage 0
Frequent fundraising 0
Liquidity concerns 0
Operational stress 0
Balance-sheet-quality risk score (BQRS) 0/5
Source: CLSA

DMart: Company information

DMart runs a chain of large supermarkets that offer a range of home and personal
products, usually at the lowest prices for the city/town. They also have an online
offering, which largely focusses on consumer staples, especially staple foods (non-
fresh). It currently operates 341 stores (as of Dec 31, 2023) with a retail area of
14.19m sqft across west, northwest and south India. The top-3 states of
Maharashtra, Gujarat and Telangana account for 196 stores, or 57% of the stores.
DMart follows a cluster-based store structure in which it increases store density in
city/district/state before expanding to new geographies to keep supply-chain costs
low.
DMart has a unique model compared with other domestic competitors in which it
usually owns most of its real estate for its stores. This has meant that store addition
is relatively slow but allows DMart to have standardised stores across geographies
and optimise costs. New stores are typically between 40,000-60,000 sqft in area.
Figure 81
DMart follows a cluster-based expansion strategy
Source: DMart filing.
DMart also follows a cluster-based approach to its ecommerce business (DMart

Ready), which is offered in 22 large cities. DMart Ready has a smaller assortment
than at the large-format stores, usually focussing on staples and fresh food, unlike
the stores that usually do not offer fresh food. DMart Ready takes a hybrid
approach on fulfilment, offering free pickups from pickup points or chargeable
home delivery.

Figure 82
DMart Ready (ecommerce offering) is currently available in 22 cities
Source: DMart filings.
Figure 83
Mutual fund holdings have Shareholding pattern (%)

gradually increased,
however FPI holdings have
declined
Source: DMart filings.

Founders and management

DMart was founded by Mr Radhakishan Damani, who has been a long-time investor
in Indian equity markets. He is known to be an astute investor and saw the large,
unorganised grocery retail space as an opportunity. Unlike other organised retailers
of the time, DMart focussed on low gross margins and tight inventory control to
differentiate from others.
The first store was opened in Powai in Mumbai in 2002. The initial expansion was
very slow as the founder built a team to perfect the model, with a focus on a limited
assortment but the best possible quality at the lowest price.
The CEO of the company has been with DMart for 20 years and has been
instrumental in building the business along with the founder and holds a meaningful
stake in the company. Most of the senior management has been with DMart for a
considerable duration with five of the nine spending more than 15 years and
another two more than five years.
Figure 84
Board of directors
Board of directors Designation Experience Qualifications
Ramesh Damani Chairman & Independent Founder, Ramesh S Damani Finance MBA, Bachelor of
Director Commerce
Ignatius Navil Noronha Managing Director & CEO DMart - 20 years; Hindustan Unilever - 4 Masters in Marketing
years Management
Ramakant Baheti Whole-time Director & Group DMart - 23 years; Bright Star Chartered Accountant,
CFO Bachelor of Commerce
Elvin Machado Whole-time Director DMart - 16 years; Hindustan Unilever - 18
years; Mayo Healthcare
Manjri Chandak Non-executive Director ASK Investment Managers Post graduation in Finance
and Investment
(Nottingham), Bachelor of
Commerce
Kalpana Unadkat Independent Director
Chandrashekhar Bhave Independent Director Chairman, SEBI; Chairman & Managing Bachelor of Electrical
Director, NSDL Engineering
Harishchandra M. Bharuka Independent Director Managing Director, Kansai Nerolac Cost and Works
Accountant, Bachelor of
Commerce

Figure 85
Senior leadership team

Senior leadership team Designation Experience Qualifications
Ignatius Navil Noronha Managing Director & CEO DMart - 20 years, Hindustan Unilever - Masters in Marketing
4 years Management
Ramakant Baheti Whole-time Director & DMart - 23 years, Bright Star Chartered Accountant,
Group CFO Bachelor of Commerce
Elvin Machado Whole-time Director DMart - 16 years, Hindustan Unilever -
18 years, Mayo Healthcare
Narayanan Bhaskaran COO, Retail DMart - 16 years, TCL India, BIRLA Sun PGHRM (XLRI), Bachelor
Life Distribution of Commerce
Niladri Deb CFO DMart - 6 years, Kraft Heinz - 11 years, Chartered Accountant,
ITC - 7 years, Usha International - 4 Cost and Works
years Accountant, Bachelor of
Commerce
Hitesh Shah VP, Operations DMart - 17 years, Hindustan Unilever Bachelor of Commerce
Trivikrama Rao Dasu CEO, Avenue E-Commerce DMart - 9 years, HomeShop18 - 5 MBA, Masters
Limited years, Microsoft - 5 years, AOL - 1 Communication
year, MCI 4 years, WPSX - 3 years,
Television International - 1 year
Biswabrata Chakravorty Group CIO DMart - 3 months, IndusInd Bank, Cigna PGDM (Systems),
TTK Health Insurance, Reliance Life Bachelor of Engineering
Insurance, Barclays, Bank of America,
ICICI Prudential Life Insurance
Pallavi Bakshi Group CHRO DMart, Cipla, Jubilant Foodworks, Tata PGDHRM, Bachelor's in
Communications and Unilever PLC Hotel Management

Appendix
Figure 86
Green tea prices (Rs per tea-bag)
Source: CLSA, DMart
Figure 87
Detergent prices (Rs per gram)
Source: CLSA, DMart

Figure 88
Fabric conditioner prices (Rs per ml)
Source: CLSA, DMart
Figure 89
Biscuit prices (Rs per gram)
Source: CLSA, DMart

Figure 90
Mango drink prices (Rs per ml)
Source: CLSA, DMart
Figure 91
Handwash prices (Rs per ml)
Source: CLSA, DMart

Figure 92
Coconut oil prices (Rs per ml)
Source: CLSA, DMart
Figure 93
Tomato ketchup prices (Rs per gram)
Source: CLSA, DMart

Figure 94
Instant coffee prices (Rs per gram)
Source: CLSA, DMart
Figure 95
Air freshener prices (Rs per gram)
Source: CLSA, DMart

Figure 96
Oats prices (Rs per gram)
Source: CLSA, DMart
Figure 97
Breakfast cereal prices (Rs per gram)
Source: CLSA, DMart

Figure 98
DMart has over 100 DMart private-label products

private/exclusive products
(with multiple SKUs each)
listed on its ecommerce
platform
Source: CLSA, DMart

Figure 99
DMart private-label products
Source: CLSA, DMart

Figure 100
Source: CLSA, DMart

Figure 101
Source: CLSA, DMart

Figure 102
Source: CLSA, DMart

Figure 103
Source: CLSA, DMart

Figure 104
Source: CLSA, DMart

Figure 105
Source: CLSA, DMart

Figure 106
Source: CLSA, DMart

Figure 107
Source: CLSA, DMart

Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2020A 2021A 2022A 2023A 2024CL 2025CL 2026CL
Revenue 246,750 237,872 303,525 418,333 495,238 643,352 787,519
Cogs (ex-D&A) (210,159) (203,563) (260,527) (357,752) (424,612) (549,030) (671,667)
Gross Profit (ex-D&A) 36,591 34,309 42,998 60,580 70,626 94,322 115,852
Research & development costs - - - - - - -
Selling & marketing expenses - - - - - - -
Other SG&A (11,122) (11,940) (12,501) (17,505) (21,820) (26,954) (32,721)
Other Op Expenses ex-D&A (4,247) (4,951) (5,482) (6,482) (7,978) (9,311) (10,731)
Op Ebitda 21,221 17,417 25,015 36,594 40,829 58,057 72,400
Depreciation/amortisation (3,398) (3,714) (4,211) (5,433) (6,307) (7,550) (9,085)
Op Ebit 17,823 13,704 20,805 31,161 34,521 50,507 63,315
Interest income 633 2,089 1,409 1,631 1,843 1,898 1,955
Interest expense (628) (345) (396) (481) (471) (485) (500)
Net interest inc/(exp) 6 1,744 1,013 1,150 1,372 1,413 1,455
Associates/investments - - - - - - -
Forex/other income - - - - - - -
Asset sales/other cash items - - - - - - -
Provisions/other non-cash items - - - - - - -
Asset revaluation/Exceptional items - - - - - - -
Profit before tax 17,829 15,448 21,817 32,312 35,893 51,920 64,771
Taxation (4,330) (3,795) (5,656) (6,748) (9,081) (13,136) (16,387)
Profit after tax 13,499 11,653 16,162 25,564 26,812 38,784 48,384
Preference dividends - - - - - - -
Profit for period 13,499 11,653 16,162 25,564 26,812 38,784 48,384
Minority interest 0 0 0 0 0 0 0
Net profit 13,499 11,653 16,162 25,564 26,812 38,784 48,384
Extraordinaries/others 0 0 0 0 0 0 0
Profit avail to ordinary shares 13,499 11,653 16,162 25,564 26,812 38,784 48,384
Dividends - - - - - - -
Retained profit 13,499 11,653 16,162 25,564 26,812 38,784 48,384
Adjusted profit 13,499 11,653 16,162 25,564 26,812 38,784 48,384
EPS (Rs) 20.8 18.0 24.9 39.4 41.3 59.7 74.4
Adj EPS [pre excep] (Rs) 20.8 18.0 24.9 39.4 41.3 59.7 74.4
Core EPS (Rs) 20.8 18.0 24.9 39.4 41.3 59.7 74.4
DPS (Rs) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Profit & loss ratios

Growth (%)
Revenue growth (% YoY) 23.9 (3.6) 27.6 37.8 18.4 29.9 22.4
Ebitda growth (% YoY) 29.2 (17.9) 43.6 46.3 11.6 42.2 24.7
Ebit growth (% YoY) 23.5 (23.1) 51.8 49.8 10.8 46.3 25.4
Net profit growth (%) 44.2 (13.7) 38.7 58.2 4.9 44.7 24.8
EPS growth (% YoY) 38.9 (13.7) 38.7 58.1 4.8 44.5 24.6
Adj EPS growth (% YoY) 38.9 (13.7) 38.7 58.1 4.8 44.5 24.6
DPS growth (% YoY) - - - - - - -
Core EPS growth (% YoY) 38.9 (13.7) 38.7 58.1 4.8 44.5 24.6
Margins (%)
Gross margin (%) 14.8 14.4 14.2 14.5 14.3 14.7 14.7
Ebitda margin (%) 8.6 7.3 8.2 8.7 8.2 9.0 9.2
Ebit margin (%) 7.2 5.8 6.9 7.4 7.0 7.9 8.0
Net profit margin (%) 5.5 4.9 5.3 6.1 5.4 6.0 6.1
Core profit margin 5.5 4.9 5.3 6.1 5.4 6.0 6.1
Op cashflow margin 5.2 5.1 4.0 6.1 5.1 5.6 5.9
Returns (%)
ROE (%) 16.1 9.9 12.3 16.8 15.0 18.4 19.0
ROA (%) 14.1 8.0 10.6 14.7 13.1 16.3 17.0
ROIC (%) 15.6 8.7 11.5 15.8 14.6 18.6 19.7
ROCE (%) 20.7 11.6 15.6 20.1 19.6 25.0 26.5
Other key ratios (%)
Effective tax rate (%) 24.3 24.6 25.9 20.9 25.3 25.3 25.3
Ebitda/net int exp (x) - - - - - - -
Exceptional or extraord. inc/PBT (%) - - - - - - -
Dividend payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Balance sheet (Rsm)

Cash & equivalents 915 1,812 835 1,868 12,014 16,570 25,065
Accounts receivable 485 721 2,309 2,466 2,919 3,704 4,426
Inventories 19,094 21,673 25,869 30,556 36,266 45,388 55,435
Other current assets 2,429 15,403 4,499 18,484 18,576 18,670 18,766
Current assets 22,923 39,609 33,511 53,374 69,775 84,332 103,692
Fixed assets 54,226 67,789 86,498 102,933 113,658 139,190 169,330
Investments - - - - - - -
Goodwill 0 0 0 0 0 0 0
Other intangible assets 0 0 0 0 0 0 0
Other non-current assets 43,692 29,066 34,031 26,129 27,664 29,382 31,306
Total assets 120,841 136,464 154,040 182,436 211,097 252,905 304,328
Short term loans/OD 680 786 956 1,103 1,271 1,465 1,689
Accounts payable 4,460 5,655 5,312 7,013 8,323 10,762 13,166
Accrued expenses 143 222 334 461 507 557 613
Taxes payable 0 0 0 0 0 0 0
Other current liabs 1,935 4,055 4,341 4,753 4,955 5,170 5,397
Current liabilities 7,218 10,719 10,943 13,329 15,056 17,955 20,866
Long-term debt/leases/other 1,781 2,169 3,203 3,292 3,384 3,478 3,575
Convertible bonds - - - - - - -
Provisions/other LT liabs 487 523 653 790 813 838 862
Total liabilities 9,486 13,411 14,799 17,411 19,253 22,270 25,303
Share capital 6,478 6,478 6,478 6,483 6,489 6,496 6,502
Retained earnings 104,878 116,575 132,763 158,543 185,355 224,139 272,523
Reserves/others 0 0 0 - - - 0
Shareholder funds 111,355 123,053 139,241 165,025 191,844 230,635 279,025
Minorities/other equity 0 0 0 0 0 0 0
Total equity 111,355 123,053 139,241 165,025 191,844 230,635 279,025
Total liabs & equity 120,841 136,464 154,040 182,436 211,097 252,905 304,328
Total debt 2,462 2,955 4,159 4,395 4,655 4,944 5,264
Net debt 1,547 1,143 3,325 2,527 (7,359) (11,626) (19,800)
Adjusted EV 2,598,160 2,591,314 2,592,826 2,596,434 2,588,902 2,586,984 2,581,153
BVPS (Rs) 171.9 190.0 215.0 254.6 295.6 355.1 429.1
Balance sheet ratios

Key ratios
Current ratio (x) 3.2 3.7 3.1 4.0 4.6 4.7 5.0
Growth in total assets (% YoY) 72.7 12.9 12.9 18.4 15.7 19.8 20.3
Growth in capital employed (% YoY) 91.4 10.0 14.8 17.5 10.1 18.7 18.4
Net debt to operating cashflow (x) 0.1 0.1 0.3 0.1 - - -
Gross debt to operating cashflow (x) 0.2 0.2 0.3 0.2 0.2 0.1 0.1
Gross debt to Ebitda (x) 0.1 0.2 0.2 0.1 0.1 0.1 0.1
Net debt/Ebitda (x) 0.1 0.1 0.1 0.1 - - -
Gearing
Net debt/equity (%) 1.4 0.9 2.4 1.5 (3.8) (5.0) (7.1)
Gross debt/equity (%) 2.2 2.4 3.0 2.7 2.4 2.1 1.9
Interest cover (x) 29.4 45.8 56.1 68.2 77.2 108.0 130.6
Debt cover (x) 5.2 4.1 2.9 5.8 5.5 7.3 8.8
Net cash per share (Rs) (2.4) (1.8) (5.1) (3.9) 11.3 17.9 30.5
Working capital analysis
Inventory days 30.3 36.5 33.3 28.8 28.7 27.1 27.4
Debtor days 0.9 0.9 1.8 2.1 2.0 1.9 1.9
Creditor days 7.9 9.1 7.7 6.3 6.6 6.3 6.5
Working capital/Sales (%) 6.3 11.7 7.5 9.4 8.9 8.0 7.5
Capital employed analysis
Sales/Capital employed (%) 218.6 191.5 212.9 249.7 268.4 293.8 303.8
EV/Capital employed (%) 2,301.3 2,086.5 1,818.7 1,549.6 1,403.3 1,181.2 995.7
Working capital/Capital employed (%) 13.7 22.4 15.9 23.4 23.8 23.4 22.9
Fixed capital/Capital employed (%) 48.0 54.6 60.7 61.4 61.6 63.6 65.3
Other ratios (%)
PB (x) 23.4 21.1 18.7 15.8 13.6 11.3 9.4
EV/Ebitda (x) 122.4 148.8 103.7 71.0 63.4 44.6 35.7
EV/OCF (x) 201.9 214.0 213.6 101.3 101.9 72.0 56.0
EV/FCF (x) (655.7) (341.5) (242.5) 601.5 309.4 907.2 375.2
EV/Sales (x) 10.5 10.9 8.5 6.2 5.2 4.0 3.3
Capex/depreciation (%) 495.3 530.5 542.3 392.3 270.0 438.2 431.8

Cashflow (Rsm)
Operating profit 17,823 13,704 20,805 31,161 34,521 50,507 63,315
Operating adjustments - - - - - - -
Depreciation/amortisation 3,398 3,714 4,211 5,433 6,307 7,550 9,085
Working capital changes (3,730) (1,203) (6,482) (3,015) (4,782) (7,391) (8,281)
Interest paid / other financial expenses 299 (1,437) (642) (585) (1,372) (1,413) (1,455)
Tax paid (4,815) (2,561) (5,528) (7,001) (8,972) (13,018) (16,259)
Other non-cash operating items (107) (106) (224) (365) (302) (302) (302)
Net operating cashflow 12,868 12,111 12,140 25,630 25,401 35,934 46,104
Capital expenditure (16,831) (19,699) (22,832) (21,313) (17,033) (33,082) (39,224)
Free cashflow (3,962) (7,589) (10,693) 4,317 8,368 2,852 6,879
Acq/inv/disposals (29,699) 7,852 10,515 523 - - -
Int, invt & associate div (466) 292 (604) (3,632) 2,256 2,312 2,369
Net investing cashflow (46,996) (11,555) (12,922) (24,422) (14,776) (30,771) (36,856)
Increase in loans (6,565) (377) - - - - -
Dividends 0 0 0 0 0 0 0
Net equity raised/others 40,405 719 (196) (174) (479) (607) (752)
Net financing cashflow 33,840 342 (196) (174) (479) (607) (752)
Incr/(decr) in net cash (287) 897 (977) 1,034 10,146 4,556 8,496
Exch rate movements - - - - - - -
Opening cash 1,202 915 1,812 834 1,868 12,014 16,569
Closing cash 915 1,812 834 1,868 12,014 16,569 25,065
OCF PS (Rs) 19.9 18.7 18.7 39.5 39.1 55.3 70.9
FCF PS (Rs) (6.1) (11.7) (16.5) 6.7 12.9 4.4 10.6
Cashflow ratio analysis

Growth (%)
Op cashflow growth (% YoY) 51.7 (5.9) 0.2 111.1 (0.9) 41.5 28.3
FCF growth (% YoY) - - - - 93.9 (65.9) 141.2
Capex growth (%) 22.0 17.0 15.9 (6.7) (20.1) 94.2 18.6
Other key ratios (%)
Capex/sales (%) 6.8 8.3 7.5 5.1 3.4 5.1 5.0
Capex/op cashflow (%) 130.8 162.7 188.1 83.2 67.1 92.1 85.1
Operating cashflow payout ratio (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cashflow payout ratio (%) - - - - - - -
Free cashflow payout ratio (%) - - - - - - -
DuPont analysis
Ebit margin (%) 7.2 5.8 6.9 7.4 7.0 7.9 8.0
Asset turnover (x) 2.6 1.8 2.1 2.5 2.5 2.8 2.8
Interest burden (x) 1.0 1.1 1.0 1.0 1.0 1.0 1.0
Tax burden (x) 0.8 0.8 0.7 0.8 0.7 0.7 0.7
Return on assets (%) 14.1 8.0 10.6 14.7 13.1 16.3 17.0
Leverage (x) 1.1 1.1 1.1 1.1 1.1 1.1 1.1
ROE (%) 16.1 9.9 12.3 16.8 15.0 18.4 19.0
EVA® analysis
Ebit adj for tax 13,495 10,337 15,412 24,654 25,787 37,729 47,297
Average invested capital 86,514 119,054 133,969 155,780 176,820 202,572 239,966
ROIC (%) 15.6 8.7 11.5 15.8 14.6 18.6 19.7
Cost of equity (%) 12.8 12.8 12.8 12.8 12.8 12.8 12.8
Cost of debt (adj for tax) 6.1 6.0 5.9 6.3 6.0 6.0 6.0
Weighted average cost of capital (%) 12.8 12.8 12.8 12.8 12.8 12.8 12.8
EVA/IC (%) 2.8 (4.1) (1.3) 3.0 1.8 5.8 6.9
EVA (Rsm) 2,397 (4,934) (1,773) 4,671 3,106 11,744 16,515

Important disclosures DMart - BUY
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Companies mentioned
DMart (DMART IS - RS4,014.10 - BUY)
Aldi UK (N-R)
Alliance World Manufacturing (N-R)
AOL (N-R)
Aroma De France (N-R)
Asian Paints (APNT IS - RS2,815.1 - SELL)
ASK Investment Managers (N-R)
Bank of America (N-R)
Barclays (N-R)
BIM Birlesik Magazalar (N-R)
BIRLA Sun Life Distribution (N-R)
Bright Star (N-R)
Britannia Industries (BRIT IS - RS4,816.9 - O-PF)
Carrefour (N-R)
Cigna TTK Health Insurance (N-R)
Cipla (CIPLA IB - RS1,436.2 - O-PF)
CNO Industries (N-R)
Coca-Cola (N-R)
Colgate India (CLGT IB - RS2,615.7 - SELL)
Concept Hygiene (N-R)
Costco (N-R)
D&N Havelli (N-R)
Dabur (DABUR IS - RS518.4 - O-PF)
Devyani (DEVYANI IN - RS156.6 - O-PF)
Disha Foods (N-R)
Dmart Ready (N-R)
Eastern Agro Foods (N-R)
Godrej Consumer (GCPL IB - RS1,202.4 - SELL)
Hindustan Foods (N-R)
Hindustan Unilever (HUVR IB - RS2,269.3 - U-PF)
Hitkari Gram Udyog Sangh (N-R)
HomeShop18 (N-R)
ICICI Prudential Life (IPRU IN - RS549.6 - BUY)
IKEA (N-R)
IndusInd Bank (IIB IS - RS1,434.1 - BUY)
ITC (ITC IB - RS409.5 - BUY)
Jewel Consumer Care (N-R)
Jubilant FoodWorks (JUBI IN - RS446.0 - SELL)
Jubilee Industries (N-R)
Kaps Hygiene (N-R)
Kayem Foods (N-R)
Kellogg (N-R)
Kraft Heinz (N-R)
Lidl Great Britain (N-R)
Malas Food (N-R)
Marico (MRCO IB - RS489.6 - SELL)
Mayo Healthcare (N-R)
MCI (N-R)

Microsoft (N-R)
Naga Limited (N-R)
Neema Soaps (N-R)
Nestle India (NEST IB - RS2,496.7 - U-PF)
NSDL (N-R)
P&G (N-R)
P&G India (N-R)
Pacific Global (N-R)
Paclean Ventures (N-R)
Parle (N-R)
PepsiCo (N-R)
Quaker Oats (N-R)
Reckitt Benckiser (N-R)
Reliance Industries (RELIANCE IB - RS2,850.8 - BUY)
Reliance Retail (N-R)
Renewal Industries (N-R)
Rossari Biotech (N-R)
Rubicon Formulations (N-R)
Sans Soaps & Detergents (N-R)
Schwartz Group (N-R)
SEBI (N-R)
Siyon Consumer Care (N-R)
Skyline Foods (N-R)
Sula (SULA IN - RS524.0 - BUY)
Swiss Singapore (N-R)
Tainwala Personal Care (N-R)
Target (N-R)
Tata Comm (TCOM IN - RS1,910.2 - O-PF)
Tata Consumer (TATACONS IN - RS1,146.2 - U-PF)
Television International (N-R)
Tesco (N-R)
Titan (TTAN IB - RS3,582.6 - BUY)
Unilever (N-R)
Usha International (N-R)
Varun Beverages (VBL IN - RS1,396.5 - BUY)
Vijayh Anand Specialty (N-R)
Vinod Kumar (N-R)
V-Mart Retail (N-R)
Walmart (N-R)
Westlife (WESTLIFE IN - RS730.9 - SELL)
Wipro (WPRO IB - RS494.8 - SELL)
WPSX (N-R)
Zomato (ZOMATO IN - RS157.9 - BUY)
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DMart

Aditya Soman* Private labels rising, initiate at BUY

>$500bn addressable market, less than 5% organised

Initiate at BUY, target price Rs5,107

Profit & Loss (Rsm)

20 March 2024 aditya.soman@clsa.com 2

DMart: Investment thesis

DMart is a discount retailer operating large-format stores and a growing ecommerce

Large market opportunity

We see total addressable market (TAM) growing to US$2.3trn in 25 years, with

20 March 2024 aditya.soman@clsa.com 3

1. Large food staples assortment, which is a key driver of footfall in a DMart

3. Low cost as fulfilment is still customer-driven. Since the majority of DMart

Cost leadership translating to lower consumer prices

20 March 2024 aditya.soman@clsa.com 4

Private labels to expand, globally a key differentiator for retailers

Historically DMart has underplayed the private-label opportunity so as not to be

Valuation demanding but very large long-term opportunity; BUY

We value DMart on an equal-weight blend between our PE-based valuation of 67x

20 March 2024 aditya.soman@clsa.com 5

So expensive…why do we not agree?

DMart PE on FY31CL below FY31CL (discounted at 12% to FY23) PE

Sensitivity of earnings growth on discounted multiples

Sensitivity of multiple to earnings Cagr – five years out

20 March 2024 aditya.soman@clsa.com 6

DMart: >US$500bn retail opportunity

Source: CLSA MOSPI, DMart

We expect DMart to 10-year sales Cagr comparison: DMart vs TAM

Source: CLSA MOSPI, DMart

20 March 2024 aditya.soman@clsa.com 7

Source: CLSA, Walmart, Amazon

20 March 2024 aditya.soman@clsa.com 8

Source: CLSA, Walmart, US Census

20 March 2024 aditya.soman@clsa.com 9

DMart has no stores in DMart stores and 2048 potential

Source: CLSA, DMart

Source: CLSA, DMart

20 March 2024 aditya.soman@clsa.com 10

Annual store additions from a similar base

Source: CLSA, Company data

20 March 2024 aditya.soman@clsa.com 11

Source: CLSA, Walmart, Costco, DMart

20 March 2024 aditya.soman@clsa.com 12

DMart: Lowest cost big-box retailer

Source: CLSA, Company data

20 March 2024 aditya.soman@clsa.com 13

Source: CLSA, Companies

Common size income statement for big-box retailers (%)

DMart maintains the lowest Operating cost breakdown (% of sales)

Source: CLSA DMart.

20 March 2024 aditya.soman@clsa.com 14

20 March 2024 aditya.soman@clsa.com 15

Source: CLSA Open Street Map

20 March 2024 aditya.soman@clsa.com 16

Source: CLSA, DMart

20 March 2024 aditya.soman@clsa.com 17

Source: CLSA, DMart.

DMart is utilising rooftop Rooftop solar panels and carports

Source: CLSA, DMart.