ValuePickr Forum

Avenue Supermart: a compounding machine?

I saw in UK all supermarket check their prices against TESCO, as TESCO was biggest, that does not mean TESCO get all business, as you see other factors as well like convenience, overall shopping experience other offers etc… I see BB has offer on cards, their own Profit club cards and better ambience, less queque, better parking facilities (as BB mostly in malls or better locality) I find at D mart not only ppl at D mart even around D mart get cramped due to hardly any parking provided by D mart and I dont know how . local Police allow them to misuse the public-place for parking which does not belong to them… I generally dont go to Dmart due to parking issues to save 200-300 rs…

I’m not saying DMart will get all the business. But their competitors acknowledge their positives. Ultimately we will all have preferences which is the reason why many companies survive in the same industry. How does the local police allow DMart to use public spaces for parking their customers’ cars? I don’t think they do anything to encourage their customers to park vehicles in no-parking zones.

I enquired with big bazar ppl about this future pay app and it’s comparison with dmart. You have to buy a minimum 3k to be eligible for cash back. Pls note this is not a discount. Secondly, whatever the cash back amount , Rs 150 is credited every month to your wallet - you don’t get it in one go. There was a long que in their customer service desk of customers waiting for their cashback. Some customers were really irated and it appears no one told them them that only 150 per mth would be credited. Those that knew, told me that the cash back was never credited to their wallet. It is pertinent to note that the line at the customer service dept was longer than the line at the cash counter itself.

When I went to buy diapers there were two salespeople there trying to convince me to download the app and pay through it. I told them about the complaints in the future pay app and one of them told me problem Hain aur hum logon be bhi complain Kiya Hain.

In the end, we went to d-mart and purchased the same diaper at 7.74 per piece while at big bazaar it was costing us 10.42 per piece even after the cashback.

I feel the biggest threat to big bazaar is big bazaar itself

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if your are buying chidlrens’ diapers, these are available from firstcry at prices cheaper than even DMart.

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As someone mentioned above, the target class for Dmart is middle class and below from the economic strata.

While at individual category or Product level, there will always be other players who can offer it cheaper than D Mart, but at the basket level discount D mart more or less makes up for the value it offers.

BB, Amazon etc are convenient only for Tech savvy shoppers who hold multiple bank cards, and can simulate discount options to split their shopping across Apps and stores. For someone who gets salary on 1st and shops his needs for the entire month, Dmart is the go to option

Big Bazaar’s future pay acts as more of a self goal with lot of issues and complicated cash back fundas. The only good part is you load your Sodexo into a Future pay card. 10K upfront allows you to shop for 1000 everymonth for 12 months. So you can get a mobile/ electronics/ appliances etc of your choice using Future pay @20% discount after a year.

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There could be but we cannot go to different shops to buy different items.

I am using BB Future Pay & not seen any issue at all or not seen any queque for complaint at least in Navi Mumbai stores and for Profit club customers you have Priority Billing, no queque and you get 12000 worth fo loading 10k in 12 months (yes its 12 months) but its okay, along with this 2000 they have other offer always running in stores.

India is big market, so many players can survive, but ppls are too biased towards DMart, maybe due to RK Damani??

Probably you remember me as a fanboy of DMart. Anyway I’d still give a try. DMart is very highly valued. But I feel as we go forward deposit rates will plummet, stock valuations will increase and good companies will not be available for P/E of 15. Here are my reasons.

  1. The world is awash with capital. So they need to find yield.
  2. Smart companies will get smarter and bigger - in the markets and also on the bourses.
  3. The world has not seen any large scale capital destruction over 80 years since WWII. I’m talking not only about financial capital but also real assets like buildings, factories, agricultural land etc. Unless we see something like that capital will play handmaiden to ideas. So companies with ideas will trump those with capital and assets. We know how Softbank is throwing money by helicopter loads to get some yield.
  4. Aging. Most of the rich nations are aging. So the need for new assets are not increasing at the rate it used to. In the US if you have a saving of 1 Million USD which gives a return of 15,000 @1.5%. Add to that 25,000 in Social Security and you have 40K as pension. Not very high but decent enough for a retired couple. What I’m saying is that the developed world is seeing very low inflation, very low interest rates, lot of capital floating around, poorer countries willing to make and sell them daily necessities at a pittance. We know stock prices of smart companies will go for high valuations. A P/E of 15 may not be the end game.

Unless there is going to be some serious asset destruction we will be experiencing this scenario. Still I do not think P/E of 80 is normal.

Completely agree with this point. Having said that Credit Card penetration is also going to increase in the next few years. Sometimes even without credit cards also you will get decent discount using Apps like HDFC PayZapp etc.

I remember you as stating that you are happy with 15% returns in the long term. Ben Graham warned investors not to buy companies at PE above 15 or 20. He said that there lies the way of sorrow. That was written 50 years ago and it is still true today.

As a value investor, I personally would not pay more than 45 PE for Dmart and do not care what the world is willing to pay. 100/15=6.67 which is the bond yield at present. Hence the end game PE was taken as 15 as per present experience and this is the maximum PE to pay for companies who have reached saturation stage.

However I agree that the end game PE could be higher when our nation becomes advanced and growth comes down.If the bond yield should go down the PE should go up. The question is whether I should pay upfront for such an eventuality.

So the end game PE is taken as 15 and this is the maximum PE to pay for companies who have reached saturation stage. ? Did not get saturation stage remarks.

Food for thought:-

1.In market capacity terms, Dmart is just 0.3% of available opportunity as on march 2019.
2. DMart’s stores generate more revenue/square foot than Walmart – $530 versus $450 for Walmart Inc (WMT) in F19.Given that unit cost in India is about one-third that in developed markets, the throughput for DMart is 3.7x that of WMT.

3.Dmart today is in the same position as Walmart was in 1970s immediately after they got listed and had 136 stores in 1976. From 1976 till 1999 (23 years) Walmart grew at an avg. rate of 22-25% CAGR in sales and also stock price.India is 4 times bigger than US in population.
4. UK is the size of UP roughly in area. Population of UP is 3.7 times more than UK.Tesco has 3433 stores.

Dmart CEO on competition & disruption -
5.The moat for every retailer, not only us, is that there is a reasonably large, almost 50% of revenue where nobody can compare one retailer to the other on pricing. Like a steel glass, what I sell versus what my competitor sells versus what someone else sells - its rim is different, finishing is different, thickness is different, and hence its pricing is different, and hence you can adjust 2%-3% margin. . This is one area which Mr. Damani used to handle in the initial phase, and he kind of built this whole thing.That is a fun side of the business, because that is very difficult to decipher. And I am saying that is the moat for every retailer. And that is where you bring in the differentiation.

6.E-commerce turns out to be more expensive. But this is only in food / grocery. When you talk about cell phones, it is reverse, you talk about books, it is again reverse. And that is what you are seeing, money is like water, where arbitrage is, it flows there. That’s how you see a significant disruption in sub-sectors. Like in electronics, in mobile phone many things have happened. So, wherever that arbitrage tilts, the business will tilt towards that area. So, fortunately because we are in the grocery business we believe the arbitrage is better for brick-&-mortar.
But I am not saying online will not or may not disrupt us, it can disrupt us. But the relative disruption is the lowest in food and grocery (F&G),which is a global phenomenon, you see across the globe, F&G is least affected by online. So, that’s the only data point I will give you. And with F&G, it generally affects those people who have high gross margin, high overheads while we are low gross margin, low overheads.

I am from Bangalore , whenever I go out I see lots of grocery store/supermarket other than our valuepickr favorites BB, Reliance etc…I see this as an opportunity for Dmart to snatch more market share from their existing market & players and when I travel to tier2/3/4 cities in India , I see there is dearth of grocery supermarkets.So they have market share to grab from other small players and also huge opportunity size to grow.Even if they capture 20-25% market in coming 20-30 years it will be massive, and leave the rest of pie for all the competitor out.

Regards,
Rakesh

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Consider the position 30 years hence with Dmart doubling 9 times and the 0.3% becomes more than 100%. Then where is the rest of the pie? And Walmart could come in at any time.

Why should they double 9 times? They can become 15% of the market then. Assume the retail space grows 5% YoY for 30 years (equivalent to long term inflation of India + 2%). Assume DMart grows 20% for 30 years. Still from 0.3% DMart would only be at 16% market share.

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Can I request you to refrain from personal confront and modify the post bit ? We all have more or less ownership bias…

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I have removed ownership biased line, but other things written might be specific issues . and we can generalised, as I am using Future Pay & Profit club since more than 2 years and never faced any issues. So, it was very one . sided post, anyway difference of opinion makes market and everybody has right to keep his/her opinion.

Sometimes maths clouds common sense. If assuming you are right, the present sales of 22000 crores, grows by 20% for the next 30 years, the sales will be 52 lakh crores and profit after tax will be 2.6 lakh crores. Why is there no company in India like that at present? Even if this almost impossible act were to happen, you are already paying 1 lakh crores today in market cap for getting 2.6 lakh crores in profit after 30 years. Imagine paying one rupee today to get 2 rupees after 30 years!

I don’t see any issue in paying 1 rupee to get 2.6 rupees every year after 30 years.

Consider a case if all goes well and dmart earns 2.6 lakh crores profit, going by terminal pe 30 (india becomes developed country and risk free bond rate is 3.3 %) it trades at mcap of 78 lakh crores which is 78 times current mcap, still a decent compounder at 15%.

Yes there are still many companies which are currently compounding at 15% and available at better valuations

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Hi @ash7979

Thanks for pointing out the ownership bias! One of the improvement areas is how to get dissenting voices be heard on a thread which consists mostly of bullish people. I agree it’s a cause for concern. Most people who post on a particular cos thread are generally optimistic about its prospects and sometimes people who have a different view to the consensus are ridiculed for having it and worse they stop posting their views altogether on the thread. I think this impacts the quality of discussion very seriously and some way needs to be devised to prevent this from happening

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I completely agree . Ownership bias is good till the time it can give constructive viewpoints but once a person starts taking things personally, it deters different views . I believe the reciprocal tendency bias ( tendency to reciprocate to personal attack) then works even more to derail constructive discussion altogether . I guess moderators can help

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We are not considering risk margin as one may not be able to execute this feat for 30 years. If we expect 20% probability, then we may have to apply risk margin to reflect it. Lot of things can go wrong in 30 years. Walmart is unique and Dmart may or may not follow the same path.