Stock of Avenue Supermarts, which runs D-Mart stores, rose 13 per cent on Friday, a consecutive gain after Thursday's five per cent rise. Market is abuzz that some large fund houses are lapping up the stock at a time it is short in supply.
Avenue Supermarts had diluted only 10 per cent of stake in the IPO. Currently, 82 per cent in the company is with the promoters and another eight per cent is owned by pre-IPO investors. Therefore, nearly 90 per cent of the float is under one-year lock in. Also, bulk of the investors who bought in the IPO are long-term investors and the one-month anchor investor lock-in is still applicable on the stock.
"There could be just Rs 2,000 crore worth shares of D-Mart that could be available for active trading. Majority of the IPO investors especially the institutional investors have entered the company from a long term perspective. Hence there is a shortage of supply. On the other hand, demand for the stock has only increased since listing as many of the investors who didn't get an allotment during IPO are lining up to buy D-Mart shares from secondary markets," said a broker.
The stock gained 151 per cent since the listing.
Incidentally, in a report released on Friday, US based brokerage JP Morgan initiated coverage on the stock with a 'neutral' rating.
Meanwhile, on Thurday credit rating agency Crisil upgraded rating on the long term bank facilities and non-convertible debentures of the company.
The stock which opened at Rs 664, touched the intra day high of Rs 761 and closed the day at Rs 750.50.
"We like Avenue Supermarket's execution capabilities, single format focus, best-in-class productivity metrics (sales densities of two to three times of its peers), prudent store expansion strategy and strong focus on customer satisfaction partly aided by its 'everyday low price' positioning," JP Morgan analysts Latika Chopra and Ebru Sener Kurumlu said in the report.
The analysts said they believe Avenue is a relatively "safe" play on India's consumption growth story, given the non-cyclical nature of the food retail business." Despite low gross margins (owing to low price positioning), ASL has amongst the highest EBITDA margins (vs peers) owing to tight control on operational costs (employee, SG&A) and high sales comps," they said.
They said there was significant headroom to gain share with prudent store expansion (2.1 million sq ft over FY18-20), sustaining healthy average same store sales growth momentum at 18 per cent over FY17-20 (vs 25 per cent over FY12-16), rising food inflation, scope for margin improvement exists with scale benefits, private label growth and contribution from online over the medium term.