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Mar 08, 2017 04:14 PM IST | Source: Moneycontrol.com

As D-Mart parent IPO hits Street, all you need to know about it

A breakdown of Avenue Supermarts', promoted by Radhakishan Damani, issue details, company profile, financials, among others.

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Avenue Supermarts, has hit the Street with an initial public offering (IPO) on Wednesday. The operator of retail chain, D-Mart, is one of the two major IPOs this week. Radio City’s operator Music Broadcast will also be looking to raise funds through the IPO later next week.

The retail chain’s IPO is also significant on the back of its strong promoter entity, Radhakishan Damani. He is considered among the major names in the markets as a trader and value investor and this is considered to be his entry into the big league.

Here’s all you need to know about the upcoming issue.

Issue details

The company targets raising Rs 1,870 crore. It has set a price band of Rs 295-299 and the issue has opened on Wednesday and will close on March 10, 2017.

The bids can be made for a minimum of 50 equity shares and in multiples of 50 shares thereafter. Avenue Supermarts has reserved 50 percent portion of public issue for qualified institutional buyers and out of which, 60 percent may be allocated to anchor investors.

Meanwhile, 15 percent portion of the total issue size is reserved for non-institutional investors and the rest 35 percent for retail investors. Kotak Mahindra Capital Company is a global co-ordinator and book running lead manager to the issue. Its book running lead managers are Axis Capital, Edelweiss Financial Services, ICICI Securities, Inga Capital, JM Financial Institutional Securities, Motilal Oswal Investment Advisor and SBI Capital Markets.

Company profile

D-Mart operates close to 120 stories, most of them concentrated in Maharashtra and Gujarat with a retail business area of 3.59 million square feet located across 45 cities in India. The company has presence in Maharashtra(59), Gujarat(27), Telangana(13), Karnataka(7), Andhra Pradesh(4), Madhya Pradesh(3), Chhattisgarh(1), NCR(1), Daman(1) and Rajasthan(2). It opened its first store in Mumbai, Maharashtra in 2002.

Fund utility

In its draft prospectus, the company had said that a large chunk of the funds raised through the issue will be used to repay debt. Along with that, it will also redeem non-convertible debentures (NCDs) and purchase of fit-outs for new stores and general
corporate purposes.

Financials

As of March 31, 2016, the company had a topline of about Rs 8,600 crore and a net profit of about Rs 320 crore. D-Mart accounts for 48 percent of the company's total retail spend.

Numbers speak

The company’s earnings have been growing at 31 percent compounded for the preceding two years. Extrapolating that, the company is expected to report an earnings per share of roughly Rs 7.6 for this financial year. An issue price of Rs 300 would mean a price earnings multiple of roughly 40 times estimated FY17 earnings.

Veteran promoter

Radhakishan Damani, the owner of Avenue Supermarts, has been a value investor and trader in the stock market for decades now. His contemporaries hold him in high regard.

Damani had made his fortune by investing in the shares of blue chip multinational corporations in the late 80s and early 90s. And while many of his bets post 2007 turned out to be immensely profitable, there were no stand-out calls.

According to this report, the value of Damani’s holdings in listed companies stood at Rs 2,665 crore at latest market prices. And this includes only the stocks where he holds over 1 percent, and so has to be disclosed to stock exchanges.

Analyst view

Brokerages largely cite the IPO to be attractive and recommend subscribing to the issue.

Analysts are upbeat on the IPO. They cite D-Mart’s go-to market’s strategy similar to that of global retailer Walmart. Market experts are already gung-ho about the Radhakishan Damani-promoted company’s IPO. “D-Mart has been trying to do what Walmart did in the US — enter a territory, saturate it and achieve profitability,” Amnish Aggarwal, Senior VP-Research at Prabhudas Lilladher told CNBC-TV18.

Market expert SP Tulsian has hailed the business model of D-Mart and says improving sales mix and financials bode well for the company, he said. Avenue Supermarts RHP (red herring prospectus) for the IPO makes a classic case of study for business schools,said market expert SP Tulsian of sptulsian.com, adding, the price band makes Avenue Supermarts IPO "very attractive".

Meanwhile, grey market brokers say that the issue is quoting at a premium of Rs 170-180 in the unofficial market.

Major rivals 

Avenue Supermarts competes with Kishore Biyani’s Future Retail. The company posted a net profit of over Rs 14 crore in FY16. Spencer Retail, owned by RPG Group, also competes with D-Mart’s operator. It posted a loss of Rs 168 crore in the last financial year.

Strategy

One of the most attractive propositions for D-Mart is its strategy of EDLP/EDLC (Every Day Low Price/Cost), which has largely customers to the retail chain.

The company believes in cluster-based approach for expansion and will continue to grow business in existing regions of West, South and Central India. Its entire business focus lies on running the business at very tight cost.

Additionally, Avenue Supermarts owns the property which houses these retail chains, thereby implying good real estate value as well.

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