DMart IPO review – Is it good

Avenue Supermarts Limited is Mumbai based firm and it’s a supermarket chain D-Mart in a well known brand in all the major cities in India. They are going to introduce their initial public offer which will hit the primary market on 8^th March 2017. The company aims to raise around Rs.1, 870 crore by offering shares at Rs.290-Rs.299 per Equity Share. This is going to be one of the largest retail segment IPO to take place in long time.

About Company

Avenue Supermarts Limited was incorporated on May 12, 2000 at Mumbai, Maharashtra and owned by top notch stock market investor Radhakishan Damani .They are an emerging national supermarket chain, with a focus on value-retailing. In India, they are one of the largest and most profitable F&G retailers. The firm offers a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories.

In India, they had 112 stores with Retail Business which is located across 41 cities. Number of stores in different cities:-

• Maharashtra (58),
• Gujarat (26),
• Telangana (13),
• Karnataka (7),
• Andhra Pradesh (3),
• Madhya Pradesh (3),
• Chhattisgarh (1) and
• NCR (1)

They operate and manage all their stores. They operate predominantly on an ownership model (including long-term lease arrangements, where lease period is more than 30 years and the building is owned by us) rather than on a rental model. They operate distribution centres and packing centres which form the backbone of their supply chain to support their retail store network. They had 21 distribution centres and six packing centres in Maharashtra, Gujarat, Telangana and Karnataka.

Their business approach is to retail quality goods at competitive prices. The majority of products stocked by them are everyday products forming part of basic rather than discretionary spending.

They classify their products under the following categories:

• Foods: This category includes staples, groceries, fruits & vegetables, snacks & processed foods, dairy & frozen products, beverages and confectionery.
• Non-Foods (FMCG): This category includes home care products, personal care and toiletries and other over the counter products.
• General Merchandise & Apparel: This category includes bed & bath products, home appliances, furniture, crockery, utensils, plastic goods, garments and footwear.

Their category-wise Revenue from Sales for the last three Fiscals is as follows:

They believe that their distribution centres have provided them with the following benefits:

1. Streamline and consolidate certain administrative functions, logistics procedures and human resource requirements from the individual store level into the distribution centre level;
2. Reduce costs and time by providing centralised procurement for certain products;

• Better inventory control with reduced stock shortages in stores due to use of our stock replenishment systems.

1. Better margins due to efficient supply chain management.

Their SUBSIDIARIES

They have following Subsidiaries:

1. Align Retail Trades Private Limited;
2. Avenue Food Plaza Private Limited; and
3. Nahar Seth & Jogani Developers Private Limited.

Objects of the Issue:

Don’t have much time, have a look at our video review for DMart IPO

The net proceeds of the IPO are proposed to be used as set forth below:

1. Repayment or prepayment of a portion of loans and redemption or earlier redemption of NCDs availed by the Company;
   2. Construction and purchase of fit outs for new stores;
   3. General corporate purposes.

Competitors Analysis

*From Economic Times

Based on the above chart, you can see that Dmart is placed in middle of both Future Retail and CESC but there margins are much higher than both of them.

Also the company recorded Rs 28,136 of sales per square foot compared with an estimated Rs 9,000 for Trent and Rs 5,300 in case of Future Retail. Based on both these criteria you can see that Dmart is much better placed that the competitors.
Financial

 

The firm has marked a presence with strong track record of revenue growth and profitability. Their total revenue has grown at CAGR of 40.28% from FY 2012 to FY 2016.

CAGR of profit after tax is 51.85%.

Basic EPS for the year 2015-16 is Rs. 5.72
RoNW for 2015-16 is 21.13%.

Net Asset Value per Equity Share as on March 31, 2016 is Rs. 27.08.

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