Avenue SuperMarts IPO D-mart

Avenue Supermarts Limited which runs the famous retail chain store D-Mart, is planning to raise around Rs.1,870 crore through its IPO. Much awaited Avenue Supermarts IPO that has caused flutters in the Grey market for over three weeks now is all set to open on 8th March 2017. The Dmart owned Avenue Supermarts IPO in country’s retail sector is coming after considerable gap as last retail sector IPO was in 2007 and is prompted by Radhakishan Damani, who is considered an ace investor himself and enjoys a good degree of respect and ave in the investor community.

Related Posts: Avenue Supermarts IPO : Peer Analysis 

Issue Details:
Issue PeriodIssue Opens On: March 8, 2017
Issue Closes On : March 10,2017
Price BandRs. 295-299
Issue Size (Rs.)Rs.1870 Crores
Issue size (Shares)Fresh offer of Equity shares amounting to Rs. 1870 crore
Lead ManagerKotak securities, Edelweiss Fin, Axis Capital, HDFC Bank and ICICI Securities, JM Financial, Motilal Oswal, Inga, SBI Caps

About the Company
D-Mart is a one-stop supermarket chain that aims to offer customers a wide range of basic home and personal products under one roof. Each DMart store stocks home utility products – including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and more – available at competitive prices that our customers appreciate. Our core objective is to offer customers good products at great value.
DMart was started by Mr. Radhakishan Damani and opened its first store in Powai in 2002, DMart today has a well-established presence in 117 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh and NCR. The supermarket chain of D-Mart stores is owned and operated by Avenue Supermarts Ltd. (ASL). The company has its headquarters in Mumbai. The brands D Mart, D Mart Minimax, D-Mart Premia, D Homes, Dutch Harbour, etc are brands owned by ASL
Avenue SuperMarts opened its first store in Mumbai, Maharashtra in 2002. As of September 15, 2016, it had 112 stores with Retail Business Area of 3.40 million sq.ft, located across 41 cities in Maharashtra (58), Gujarat (26), Telangana (13), Karnataka (7), Andhra Pradesh (3), Madhya Pradesh (3), Chhattisgarh (1) and NCR (1).

Revenue generated from the Foods category including staples constitutes a majority of Avenue SuperMarts sales revenue. Revenue generated from the sale of Foods product category includes  staples groceries, fruits and vegetables, snacks and processed foods, dairy and frozen products, beverages and confectionery constituted 53.06% of the Revenue from Sales of the Company for the year ended March 31, 2016. Dmart targets essential products with are used by lower and upper Middle Class and relies considerably on price competitiveness, 
Objective of the Avenue SuperMarts IPO:

Avenue SuperMarts plans to use almost 20% of the net proceeds to repay debt and a part of it to open new stores to expand to new territories. 

Financials of Avenue SuperMarts

Particulars9M FY2017FY 2016FY 2015FY 2014FY 2013FY 2012
Revenue  (Rs.Million)      
Revenue from Operations87,839.9685,881.1964,394.3346,864.8833,408.5422,085.60
Other Income192.28179.86182.56158.37142.5138.49
Total Revenue 88,032.2486,061.0564,576.8947,023.2533,551.0422,224.09
Expenses      
Purchase of stock intrade75,916.0374,398.5356,484.7340,865.3229,379.2519,567.71
Change inventory stock in trade-1,760.18-1,320.79-1,612.80-1,021.04-804.89-728.14
Employee benefit expenses1,375.941,486.061,340.62873.37686.65453.12
Other Operational Costs3,120.533,086.172,333.951,810.601,273.96836.51
Finance Costs907.12908.24723.61556.76425.85260.19
Depreciation ,amortisation919.2984.29815.41570.13457.86374.66
Other expenses1,490.801,596.381,257.91918.87723.48576.13
Total Expenses81,969.4481,138.8861,343.4344,574.0132,142.1621,340.18
Profit before Tax6,062.804,922.173,233.462,449.241,408.88883.91
Net Profit after tax2,133.491,716.201,109.20834.99471.98282.36
Net Profit as Restated3,874.703,187.592,116.721,613.72938.55604.06
NPM4.41%3.71%3.29%3.44%2.81%2.74%
Equity before issue5615.435615.43    
Reserves13,438.789,588.84    
networth19,054.2115,204.27    
RONW % (annualized)27.11%20.97%    
FV1010    
IPO price299.00299.00    
Expected Fresh equity625.42625.42    
Equity post Issue6240.856240.85    
EPS on Post Issue Equity8.285.11    
PE on Post Issue Equity36.1158.51    
CAGR sales 1 yr (annulized)36.37%33.37%    
CAGR sales  3 yr (annualized)35.70%36.99%    
CAGR  NP  1 yr62.07%50.59%    
CAGR NP  3 yr47.38%50.31%    
Assessment
  • Favorable demographics, dropping dependency ratio, rapidly rising education levels and steady growth of urbanization Growing young & working population are expected to support a  good growth in Retail sector. 
  • D-Mart name commands strong brand recognition due to its long presence in the markets in which it operates.
  • Avenue SuperMarts owned D-mart is an emerging national supermarket chain, with a focus on value-retailing. According to Technopak, in 2016 the Company was one of the largest and the most profitable F&G retailer in India. D-mart offers a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories
  • Avenue SuperMarts total revenue has grown at a Compounded Annual Growth Rate (CAGR) of 35.28% from  Fiscal 2014 to Fiscal 2016. Avenue SuperMarts net profit after tax, has grown at a CAGR of 41.08% in Fiscal 2014 to Fiscal 2016. Its  total store count has grown from 75 in Fiscal 2014 to 110 in Fiscal 2016.
  • For the year ended March 31, 2016, Avenue SuperMarts stores in Maharashtra and Gujarat together contributed 81.40% of its total revenue. Furthermore, 18 out of its 21 distribution centres are located in Maharashtra and Gujarat. Thus D-mart generated a majority of its sales from our stores in Maharashtra and Gujarat. Statewise, Maharastra Sales (62.57%), Gujarat (18.83%), Telangana (10.15%), Karnataka (6.14%) Andhra Pradesh (1.03%), Madhya Pradesh (0.85%) and Chattisgarh (0.43%).
  • D-mart believes that its considerable success in Retail category is in part, due to its ability to  offer value for money using EDLC/EDLP pricing strategy. 
    EDLP  (Every Day Low Price). is a pricing strategy that offers a consistent low retail price on every item in the store every day. EDLC (Every Day Low Cost) is a sourcing strategy wherein D-mart must receive the lowest possible net cost from suppliers in order to offer EDLP to its customers
  • In Foods category including groceries and staples, we face competition from other organized retail supermarket chains including Big Bazaar, Reliance Retail, Spencers, HyperCity, and Star Bazaar on one hand and unorganised retail kirana shops on the other. In relation to non-food products and other products, the company faces competition from  retail chains such as Westside and Max. 
  • Avenue SuperMarts may face increased competition from e-tailing in the future. Avenue e-Commerce Limited, plan to venture into e-tailing business.
  • Avenue SuperMarts operates and manages all stores & operates predominantly on an ownership model . This is also true for distribution centers and packing centers.
  • D-mart business approach is to retail quality goods at competitive prices. The majority of products stocked by it are everyday products forming part of basic rather than discretionary spending.
  • To minimise  operating costs D-mart goes for owning underlying real estate or entering into long-term lease arrangements for a majority of it stores in order to minimise rental costs, procuring goods directly from vendors and manufacturers, employing an efficient logistics and distribution system and maintaining a strong focus on product assortment to minimise inventory build-up, supported by efficient store operations.
  • D-mart’s customer acquisition and retention strategy is targeted at lower-middle, middle and aspiring upper-middle income consumers.
  • D-mart has expanded its footprint using a cluster-based approach which means opening new stores within a radius of a few kilometers of its existing stores and distribution centers. This has ensured the creation of a cluster of stores within a region in and  led to increased penetration and presence in under-served markets, higher cost efficiency & economies of scale.
  • Together with good supply chain and inventory management, D-mart has focus on concentrated brand visibility using focused implementation of marketing and advertising initiatives.
  • D-mart has put in place a supply chain management systems and  internal controls to minimize product shortage and the occurrence of out-of-stock situations and pilferage also ensure optimum inventory.Its Inventory Turnover Ratio (computed by dividing revenue from operations by average inventory, which is an average of opening inventory and closing inventory) was 14.32, 14.03 and 14.18, respectively in Fiscal 2014, 2015 and 2016.
  • With over a decade of experience and successful growth, D-mart is well-positioned to take advantage of the growth potential and opportunities offered by many states in western, southern, central and northern India.
  • D-Mart is known to do certain things different from its peers. The chain offers prices that are six to seven per cent lower than its competition, no matter where it operates, which is a huge draw among its customers.
  • Avenue SuperMarts has not declared dividends for any financial year in the past and Company may not declare dividends in the future as it is pursuing a growth strategy.
  • Avenue SuperMarts RONW% has shown a steady increase and stands above 20% for Fy16.
  • Avenue SuperMarts has an enviable figure of 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. This is an indication of its superior business prowess.
  • Results for  9 months ended December 2016: Avenue SuperMarts net sales stood at Rs 8784 crore with Operating Profit  of Rs 769.68 crore i.e. OPM of 8.8%; PBT of Rs 606.28 crore; PAT of Rs 387.74 crore. On diluted equity share capital of Rs 624 crore, EPS for the nine months ended December 2016 on an annualised basis works out to Rs 8.3 and PE multiple stands at   36.1 times of nine months annualised earnings for FY 2017.

  • Avenue SuperMarts IPO has been very active in Grey market with GMP of approx  Rs. 180/-  and Kostak of Rs. 2000+.
  • There is no reason why one should not apply for Avenue SuperMarts IPO.
  • Avenue SuperMarts IPO is expected to be heavily oversubscribed.