We use a discounted cash flows (DCF) model as our primary valuation methodology, which results in a fair value/share on Mar-27E of Rs3,250 based on WACC = 9.8% and g = 5%. Our target price implies 58x Mar’27E EPS. Avenue Supermarts' multiples are ahead of regional and global peers; technical factors aside, the higher absolute multiples may be unwarranted, in our view, given risks of revenue/earnings disappointments, the business return ratio, and FCF profile.

Key upside risks that could sustain the stock above our target price include: a) stronger SSSG or revenue per store metrics owing to either successful implementation of Pharmacy SIS, lower competitive intensity or superior offerings by Avenue Supermarts resulting in accelerated market share gains; b) successful transition to the leased model or very attractive land deals could aid faster store growth; c) better traction in Avenue e-Commerce and a faster turnaround could be viewed positively; and d) entry into index or other technical factors can support the stock performance.

Key downside risks that could cause the stock to trade below our target price include: a) adverse trends in business mix going forward; b) inability to sustain infrastructure and quality of manpower required to keep pace with the expansion strategy; c) significantly higher investments or losses on its e-commerce offering; and d) other factors linked to the stock's liquidity and free float.