Mumbai: The Rs1,870-crore initial public offer (IPO) of Avenue Supermarts Ltd, the parent of the D-Mart chain, is an attractive offer for investors, say analysts citing the food and grocery supermarket chain’s promising growth record.
The issue opens on Wednesday and closes on Friday, and the company is divesting 10% of its total equity shares. The price band for the issue is set at Rs295-299 per share.
While 35% of the issue will be available to retail investors, 50% to qualified institutional buyers (QIBs) and 15% to non-institutional bidders on a proportionate basis, the company said in a release.
“The issue does not have comparable listed peers. They are bringing to the table a company growing at 40%. They are delivering a profit growth of 4-4.5% each year,” said Arun Kejriwal, director of Kejriwal Research and Information Services Pvt. Ltd.
“We need to understand that the market share of this company is insignificant, which makes the opportunity to grow virtually infinite,” said Kejriwal adding that at 33 times FY17 earnings, the issue is a good bargain, with a known promoter.
“None of the competitors have been successful, and D-mart is the only one making profits. It is a well-executed business model,” said Kejriwal.
The supermarket chain, with a focus on value-retailing, opened its first store in Mumbai in 2002, and has expanded to 118 stores as of 31 January.
Radhakishan Damani and his family owns 91.34% of Avenue Supermarts,
According to company’s red herring prospectus, its total revenue grew at a compounded annual growth rate (CAGR) of 35.28% to Rs8,606 crore in fiscal 2016. For the nine months to December 2016, the company reported a total revenue was Rs88,03 crore.
Its net profit grew at a CAGR of 40.55% from fiscal 2014 to Rs3,18.76 million in fiscal year 2016. For the nine months to December, its reported net profit stood at Rs3,87.47crore.
The company intends to use the proceeds from the IPO to repay debt of Rs1,080 crore, construction and purchase of fit outs for new stores to the tune of Rs366.6 crore, and the rest for general purposes.
Emkay Global Financial Services Ltd. has a buy rating on the issue.
“In organized retail space, D-mart seems to have created right kind of model, which is giving them good visibility for topline growth. A 40% CAGR is phenomenal for such a business,” said Dhananjay Sinha, head of research at Emkay Global.
“In terms of their operations, they have right locations for their stores. Their product assortment is very good, as they are using their own data analytics for consumer’s consumption patterns,” Sinha said.
“They own lot of their stories, rather than leasing them, saving on rental costs. They have managed to keep staff costs low. They have a conservative approach, and have been able to leverage well on their assets,” added Sinha.
Kisan Ratilal Choksey Shares and Securities Pvt. Ltd rates the issue a subscribe, saying that the stock has reasonable valuations given the listed peers such as Future retail and Trent trading at around 37 times FY17 & around 50x FY17, respectively.
“Further, an increase in the penetration among different Tier 2 & Tier 3 cities in the years to come could assist them to capture potential market share and provides strong financial performance visibility going ahead,” analysts at Kisan Ratilal Choksey added.
