Avenue Supermart: a compounding machine?

(niravacharya) #184


same info but with interactive chart in google finance.

(Bheeshma Sanghani, PhD) #185

Parking lot of a dmart in pune (kalyaninagar). Kalyaninagar is one of the most premium areas of pune and with a substantial IT population + also home to punes most expensive prj Trump Towers. Yet the parking lot consists mostly of bikes. This indicates the sharp segmentation.

(Bheeshma Sanghani, PhD) #186

On the subject of two wheelers and long queues at dmart. Found this interesting story

(Empower the Looser) #187

Thanks for the info.
If we see the second data point from left in every graph and assume that share price was 5$ and someone invested at this level, the div payout was 0.04$ , and see the div growth till 2017 it became 2$.
So adjusted div yield after stock split is 40%.

Also note that just after 5 years, in year 1995, the div yield become 2% and continuosly increased thereafter.
That is great. Isn’t it ?
We are in a phase where Dmart hasn’t even started paying out dividend. So there lies a long road ahead.

(msahani) #188

A fund managers perspective on ASL. From 17:00 min. onwards.

(Nolan) #189

Could this be disruptive?

(msahani) #190

Hard to imagine this concept working in a country like India which has a vertical layout of buildings and chawls unlike developed countries with separate houses having wide frontage and spacious backyards. Drones will be found stuck in the cable and electric wires.

(Akhil) #191

(Abhinav Mehrotra) #192

Nolan, thank you for sharing this. To provide more information, the same technology has been under development by Amazon in the USA for a few years now. The same bill was passed in the USA too some years back but we have not seen massive drone delivery adoption yet.

The main focus here is to disrupt and lower the cost of last mile delivery by an order of magnitude and that means removing the human element and trying to deliver as the crow flies.

Many concepts are under development stage, such as an autonomous van, which will come to your house and you get an encrypted key that lets to pick only your package. Then there is the PUP (Pick Up Point) model where the order is collected by the customer at their convenience. DMart has also started a few of these in Mumbai I believe.

So to answer your question yes this is disruptive, but when it will be disruptive is the more important question. Depending on the package size, energy density of batteries and lifting capacity of drones, a drone will only be able to deliver one or two orders at a time and then recharge.

I have heard Elon Musk, say that the energy density of Li-ion cells does not yet support long-range flights. By long range, he means more than 100 Kms, which is the current range of the best prototypes in sky taxis by UBER and other startups.

And while @msahani is right that India poses a unique challenge on this front I will not be so quick as to write off the entire thing. We have, in Amazon a competitor who is motivated to find a way to bring this technology to the world market, and where there is a will there is a way.

Most disruptive technologies are refuted by naysayers at first and it is the innovators who make it possible with their unique insights and solutions.

So to conclude, yes drones are definitely disruptive to the last mile delivery chain but are they disruptive to DMart is another question. When it will happen, how it will happen, who will make it happen, whether this technology will be kept proprietary to Amazon or others will develop it and share/license as well are known unknowns right now.

(msahani) #193

(Rajkamalpol) #194

Thanks @bheeshma.
I am going through the pdf’s as well - very informative.

(suhagpatel) #195

I have seen similar scenes on a regular basis in the parking lot of D-Mart is ambegaon near Katraj in Pune. Even though i can’t compare ambegaon/katraj with Kalyani Nagar, the trend is similar there.


(Shaswat) #196

(Gary) #197

Thank you for your comments @subodhs. I think the question in my head is whether there is margin of safety and what is the upside. The capability of management and attractiveness of the business is not in question - It is the attractiveness of the stock, i’m unsure of.

Few points -

  1. What has changed in the business in last few months that it warrants such significant growth from the IPO levels. Essentially, what market is saying that highly astute Mr. Dhamani undervalued his company. Right?

  2. Your anology of Titan is one of survivorship bias. Please think whether Titan would have been this multi-bagger if if hasn’t created Tanishq business … and when you invested, did you see it coming through? So, to some extent at least, the luck played a part.

  3. I come from tech industry and more and more I’m seeing companies getting disrupted in manners / ways that make me wonder. Just think of the industries (not companies) that Apple has pushed out of business and you’ll get the drift. I’m not saying that I’m seeing a situation for Avenue Supermart but I’m fairly certain that the terminal value of the DCF models today does not factor disruption. And that’s not a good idea …


(subodhs) #198

Thanks for the new and wonderful insights regarding this quality versus value conundrum of D-mart the business versus D-mart the share. Not much has changed in d-mart’s business model except it has maintained a scorching growth rate of high double digits and also the opening of new stores in their own premises, which has continued unabated. Whether damani overvalued or undervalued his company is a question that only time can answer. My personal opinion is that there is not much float available in the market for a unique model like d-mart, so the shares are rising. Consequently, that should change when float gets increased. I can remember Kishore Biyani’s company Pantaloon Retail having such remarkable valuations until they created more float.

Regarding when I bought Titan, I believed in disruptors myself. The largest jewelry market in the world had no single big branded jeweler who could provide variety and veracity in the form of purity testing by computers and certificates of quality. Furthermore, Biju Kurien was a marketing genius at Titan who convinced Ratan Tata to persist with it after initial Tanishq rollout had produced tepid results. Bhaskar Bhat was a CEO like no other in the TATA group who used to allow his marketing team leeway to create new brands like Fasttrack, Even though you did not see Tanishq coming through, just seeing their commitment was enough to make one believe that they could pull it off. At some point, we jump out of the numbers and invest in the people. investing is never always about numbers, and statistics mostly throw light into the past but not the future. Having attended their AGMs at that point, I think the team that ran Titan at that time has some similarities to the team currently running D-mart with Neville Norohna the CEO holding a large chunk of the company’s shares and having a core team picked by him and Damani. This team has been screened by Damani and Neville himself as sharing the same enthusiasm and commitment and they have large personal vested interest in the form of stock in managing D-mart. I think Warren Buffett rates this quality highly of management having personal stakes and behaving like owners instead of employees. D-mart is doing to grocery retailing what Tanishq did to branded jewelry by creating a niche as well as successfully disrupting the apple cart of the existing players. Enough has been said about that, so I will not go into that.

Now let us look at the industries disrupted by Apple/amazon/netflix. They are industries like music, video rental, books, gadgets, even toys (kids throw tantrums in toy stores so better buy online). These products suit online retail as one does not have the compunction to touch and feel and most importantly COMPARE them before buying. Grocery on the other hand is particularly unwieldy to retailing online. Even in USA, most of the grocery is still purchased in brick-and-mortar versus online. Besides, this is also an instant consumption thing. If you are out of grocery now, you need it now. Unless you live close to a fulfillment center, you have to wait while holding in balance whatever you are cooking for the delivery guy to come through. But you could also save the hassle and go to the store yourself and get it faster. Online retailing will disrupt grocery in very remote areas I am sure, but if consumer has a choice of quicker fulfillment and the compunction to touch, feel and compare before buying (which I am sure most Indians do), then grocery will never completely be disrupted by the web.

I would very much appreciate inputs from members regarding my opinion.

DISC: Invested since IPO.

(suhagpatel) #199

I have a different view on this. In urban areas where people do not have much time to go and buy grocery will be tempted to buy online. Big Basket and Gofers are examples of this. I had the similar idea around 5 years back when i got fed up in a line at a big grocery store on one fine Sunday but then thought that people would still prefer to feel, touch and see before buying grocery and online will not work. I was wrong. Today, i personally prefer to buy stuff from online as we are getting similar brands there what we get in a store like D-mart or any other store.

Disc: Invested since IPO.


(Akhil) #200

Walmart is slowly accelerating its business in India.

(Abhinav Mehrotra) #201

Mr. Damani sold 15% of his company at HINDSIGHT lower valuations so that he could hold 85,% at HINDSIGHT higher valuations. I am being careful not to use under/over to describe the valuations as it is a subjective matter, and don’t want to start a debate here.

@Gary24 I agree with you on point 2 and 3. I am seeing the same miscalculation by market participants in assigning Terminal Values to auto ancillary manufactures related to ICEVs.

Again, the personal choices of consumers is a very subjective matter and very difficult to predict. While DMart’s current clientele has majority preference towards B&M shopping, the kind of valuations that factor in multi-decade growth should also factor in changing trends in clientele’s shopping preferences. Overall, as the newer millennial generations become a bigger part of the labor market, the shopping preferences will change.

I believe there is a big shift in how this generation values time than its predecessors. We have all heard that phrase that, “the father walks 4 km to save money, while the son takes the cab to save time.” Both are right in there own way. It all comes down to how we value ourselves on a per hour basis. As we earn more, every minute wasted becomes more precious.

That said, it is difficult to say whether e-commerce will conquer it all. Even Amazon is shifting its offerings towards B&M to gain more distribution capabilities. Whether the instant consumption need will also be catered by e-commerce remains to be seen. Like I mentioned in my previous comment, last mile delivery in the next 5 years will not be the same as it is today.

To understand why grocery has been hard for e-commerce to conquer, we need to understand how e-commerce started. It started with books which were non-perishable and easy to ship. Plus e-commerce could keep a larger selection than any physical store and a book is a very standard product, you get what you see from wherever you buy.

Then they branched off to fashion, and gadgets, which were the high value per Kg products, so shipping was not a problem and again perishability and standardization.

But grocery is a whole different animal, we have perishability issues, there is no selection advantage over a B&M store, the value per KG is low so logistics is a drain and on-demand delivery is what is needed. One way Amazon bypassed this issue is by purchasing WFM, WFM will not only become a delivery point for Amazon but WFM will also become a customer to Amazon. This provides Amazon scale to venture into groceries.

It is a similar model they have used again and again. They started AWS because they themselves were the primary customer of AWS and that gave them scale to build this business offering and roll it out.

They are doing the same with building a logistics business by buying cargo planes, they themselves are the primary customer and can provide the service to others as well.

So in groceries, the next step for them to gain further scale maybe to become a supplier to restaurants.

To conclude, a lot has happened in developing the e-commerce side of retail and a lot is left to do. We can at best try to anticipate and place our bets. But it would be folly to write off any segment, value chain as safe from disruption.

(phreak) #202

The question I tried answering was if Avenue Supermarts would be valued the way it is, if Damani had sold 30% or 50% or 70% of the company instead of the 15%. The answer I came up with was a definite ‘No’. The serious lack of supply of shares for a quality business at a time when liquidity is at a high and chasing quality is what has driven it to such valuations. I think if Damani reduces his stake going forward to a 75% or 70% (which is still very high for a promoter holding), it could keep a check on the prices even if they continue the stellar performance. But then now that the market is anchored to a P/E in excess of 100, it will be interesting to watch.

(Gary) #203

Hi @Subodh - Great to see your thought process and the point about investing in people. Couldn’t agree more.

However, I’m not certain about above comment above. What is there to compare or touch or feel about say Surf Excel. Fresh veggies and fruits - may be but most of the branded products, people know them and it’s a matter of personal preferences or BTL promotions at the point in time. In fact, my personal experience is that I now save close to 2 -3 hours every weekend by not going to a More or Big Bazaar and don’t miss anything when I order from various websites. In fact, on one particular site, I don’t even mind paying them for delivery charges …

And second, it’s not just the online that’s the disrupting force. A change in policy, entry of someone like Walmart in a big way again or significant shift towards consumer preferences … I don’t know what it would be but change is inevitable and we haven’t seen enough of this management to know that they can ride those waves.