Avenue Supermart: a compounding machine?


(Bheeshma Sanghani) #224

Hi @hack2abi

I went through the report and the author does a good job about laying down the bull case. But where is the bear case for Amazon? Reports like this are one sided and highlight the good part of Amazon. But a balanced report should also focus on the negatives. Laying down a bear case is difficult for analysts following Amazon because

a) Analyst reputation will be killed instantly by putting out a short side report on Amazon and I am not sure whether he or she will be employable.

b) Laying down a bear case forces one to think pessimistically about a loved company and in the process more analytically. Pessimism is suspended in a bull market.

c) Intelligent sounding quotes by the founder of Amazon and authority bias. What the author says is the Amazon is permanently in the hypergrowth mode and investing in the future cash flows of the company. This is basically just regurgitating what the founder has said in his many shareholder letters.

Like the author of the above report i too believe that Amazon has a bright future and is a formidable company to be up against. But, I would definitely place more weightage on a report that also lays down its Achilles heel.

Best
Bheeshma


(Bheeshma Sanghani) #225

On a different note - there is a h&s formation ( or am i imagining one? ) on the d-mart chart accompanied by a trend break - a trend that has been in place post IPO. The volume also has shrunk noticeably during the formation adding to the weakness. Some retracement of its entire post IPO move is to be expected in my view.

Best
Bheeshma


(kanvgarg123) #226

I am really amused by the amount of research you are doing of retail business. The only profitable big retailers I see are Future Retail and DMART and both of them trade at astronomical valuations. DMART’s pricing is any day is better than Future retail but so are valuations. It is quite difficult to buy a stock at these valuations. I hope you update when you take a dip in DMART.

Kanv
Disc. I hold from 750 levels and it forms 4% of PF.


(Value Seeker) #227

Great point Bheeshma.

My humble view, this has become too much of a story stock: Walmart of India, Value investment guru as promoter, how owning real estate is a game changer, photos of parking lot being full, EDLP model etc. etc. Only time will tell what forces will shape the Indian retail landscape and who will emerge the victors. To paraphrase Munger, Will DMART be able to “stick anything to its ribs as owners” of this business or will the value flow to other players…we have to wait and watch. The question then becomes - do we hitch a ride on this train (or for some folks rocket) or look elsewhere?

Disclosure: Not invested; reading up on Dmart./ retail/ this thread to help refine my valuation principles and investment philosophy


(msahani) #228

This is Kishore Biyani’s third attempt at online retail. The first two, Big Bazaar Direct and FabFurnish, failed

Future Group hopes that with Retail 3.0 it will be valued at $1 trillion by 2047.


(Nolan) #229

So Mr. Biyani is saying that he is touching 2 cr. people. And its nothing compared to 130 cr. population of India. That’s misleading! When he is having all his 10,000 stores only in urban bases which are 30-35 percent of country’s population, then an apple to apple comparison would be more suitable.

Mr. Biyani’s strategy has a few merits. More stores means more penetration. How to manage capex? By having exclusive membership of atleast 2000 consumers per store, they would realize Rs. 999 per consumer. That makes it 2000 cr. (10,000 stores X Rs. 1000 X 2000 consumers). He talked about 1000 cr. being spent in technology and rest should go towards real estate expenses. But it would be a gradual process and the company would expand from internal accruals as its first lot of stores gain traction. But the flip side of this strategy is that he is still focused on urban centers making the competition even more intense there. Also, retail has to go massy not classy to succeed. So even Mr. Biyani knows that making it exclusive club memberly is only to get initial capex funding and a loyal set of customers which are going to be a steady market in initial period. Thereafter, it would be made available to all customers, with some free delivery benefits to the members just like Amazon Prime. And they are delivering in 30 minutes approx. with a nice Domino’s touch in it. He just stopped short of calling it ‘30 minutes or free’.

But when I see news reports like the following report from Goldman, my gut feeling says that similar to Telecom, Retail has its greatest opportunity still lying untapped.

Majority of the companies in India neither have the financial muscle nor a winning strategy to penetrate into the unorganized/semi-urban/rural segments. And that is why the much publicized market base of 1.3bn consumers is both grossly under-penetrated and exaggerated. These numbers look good in investment bankers’ reports (on behalf of their clients) to entice investor community to take notice and invest. Because calling it a market is different from classifying it as a target market.

Why only urban population deserves good products/services? Why can’t rural population be made part of the growth story so that their lives can improve too? As humans are they any less deserving than their urban counterparts? These questions are more socially oriented but less favorable to investing community. Because in investing money attracts money. Relax, these are not my questions. They come from the famous book “The Fortune at the Bottom of the Pyramid” by Dr. CK Prahalad. He has talked about innovative business models, products and services which can cater to the needs of the most poor people who lie at the bottom of the pyramid (to improve their living standard), and can still be profitable ventures for investors.

Reliance Jio’s strategy of cracking the rural code in India has unique insights into market penetration. Off course only a company of the size of Reliance or likes have the privelege to spend serious money in developing untapped markets. Today, from a scam plagued background, Telecom is re-emerging and getting a second wave of growth. The best part is that this growth is driven by volumes. The real beneficiary is the customer. It reinforces the belief in the free market where it is possible that sellers may control pricing in the initial part of the industry life cycle. But eventually competition catches up turning it into a buyer’s market. And the life cycles generally are getting shorter by the day making it difficult to control prices for long. In about an year or so Reliance commands a marketshare of nearly double digits in Telecom which is commendable. But what interests me most is the increase in subscribers. Just after three months of launch Jio made a world record of adding 50 million subscribers in 83 days. The overall mobile subscriber base showed unprecedented volumes.

Consider Jio from a rural consumer’s pov. Jio is following a cost leadership strategy where it is selling a service at lowest possible price. BSNL was always there but the services were below standard not creating much value for customers even at its low price point. And let me assure you that a company like Reliance can actually sell a service at a loss for extended periods to kill competition. If someone followed the Jio AGM, they would remember how telecom stocks across the board tanked as Mr. Ambani laid out his strategy of ‘FREE VOICE AND DATA SERVICES’. Its not that Reliance Industries’ stock was rising; it was holding itself without much gains because no investor likes the idea of selling a service for free. Why would Ambani do that? Because a few quarters of losses won’t dent his networth. But companies like Airtel, Voda and Idea began losing subscribers and had to dance to Reliance’s tune. Contrast this strategy with Biyani’s strategy of exclusive membership at a price which surely will make the customer think atleast once - why am I supposed to pay just for having access to a store?

Indians love freebies - all classes. We are not like westerners who feel anything that comes for free is worthless. Could there be a Jio integrated technology which can help deliver groceries free of cost? Only time will tell. After Jio’s success, I am waiting to see Reliance’s grand retail plan unfold which not only will steal marketshare in my opinion but will also target a huge untapped market beyond the urban pockets, which are slowly getting cluttered. The possibilities are endless once you put in the mind and resources to tap into it.


(msahani) #230

Any plans to convert this site to a store? https://economictimes.indiatimes.com/news/company/corporate-trends/radhakishan-damani-acquires-novotel-imagica-khopoli-from-adlabs/articleshow/61760604.cms


(msahani) #231

(msahani) #232

(Gary) #233

I don’t quite agree to this. What Vir is missing out is the empowerment of women in India versus China. An Indian parent or hubby is likely to react really bad ( I would) if their daughter or wife spends entire month salary on an LV handbag. On the other hand when it comes to male toys - Porsche et al - there is less likely concerning voice. And that’s why you see dozens 911 on lousy gurgaon roads… Even in jewelry Indian women tend to push and end up throwing money in something they deeply know is poor investment.

I don’t think we Indians are as sensible or brand agnostic as Mr. Singhavi would like us to believe.


(msahani) #234

(msahani) #235

(kingzeusvj) #236

I’ve collated major reasons for Dmart’s success - they are not all; in fact - many have been left out. You all can add your inputs too…


#237

I avoid three Dmart stores on the way and go to the furthest Dmart to avoid rush and get peaceful parking. Even after that there was no parking spot left after I parked my car. As usual the two-wheeler parking was crowded. In last 1.5 years, I have seen the 4-wheeler parking rise from 1-2 cars to now full (~12 cars) + some people (around 6 cars) parking on road beside the store.

Last Saturday when I visited Dmart, Kavesar (Thane) I found a strange thing.

Usually whenever I’ve been to Dmart, I see one or two workers lugging the fleet of shopping trolleys to the entry point. This weekend, there was no one doing this. After security check when I entered and asked them for trolley, the security guy suggested to grab one from the people who are leaving the trolley outside after dropping their purchase in their vehicles. This was causing some inconvenience and struggle for customers, but what was interesting is all the trolleys from the farthest point also were coming back to the store without one/two workers working for it.
I do not know if this was a one day instance or has Avenue Supermarts reduced the workers to optimize the operations smartly. Has anyone else experienced this at other stores as well?
What I know is even after going to Dmart with a “strict” ‘list of things to buy’ and adhering to it, my bill has increased in overall value.

Disclosure: Bought at 750 levels and exited recently due to valuation concerns. Feel a strong desire to re-enter.


(sathvikm) #238

(msahani) #239

Loved the line “We are very complex. That’s our speciality, as you can’t be the same…”. :blush:. Always v skeptical of people who talk/boast a lot and keep giving growth guidance. Let your work do the talk.


(msahani) #240

Anyone having the latest report published by Ambit on ASL?


(subodhs) #241

Hi UAB59, i have experienced this lack of trolleys on Saturdays and Sundays in Bangalore where I live. This is due to the huge crowd that shops on weekends with their families. Some families take more than one trolley so that they can exploit different checkout counters. The weekend crowds are quite a challenge to the sparse staff that are typical of any DMART store.

The point you raised about not sticking to your “strict” buying list holds good and has caused many people I know to think twice about shopping at DMART due to cost overrun/household budget overrun. This is one of the reasons why I don’t want to let go of their shares despite valuation concerns. People spend more and do it willing in the store without background music to relax them and let their guard down like in malls or slick brand/product promoters who inhabit every other supermarket and despite the general inconvenience of their checkout counter crowds. DMART for many regulars is not just a brand, it is an addiction/compulsion.


(Kumark) #242

what is ur view on the Ambit capital on D Mart?

According to Ambit Capital Pvt. Ltd, which has a sell rating on the stock, to achieve revenue compounded annual growth rate (CAGR) of 25% over the next decade, 30 basis points margin expansion and improved working capital, D-Mart needs to hike store roll out by four times (80 annually) by FY30, which is tough given the own store model. “Even Walmart which grew at an exhilarating 36% CAGR, never enjoyed such rich valuations,” it said in a note on 15 December.

“To achieve such growth, D-Mart needs to hike store roll out by four times (80 annually) by FY30, which is tough given the own store model. Even Walmart which grew at an exhilarating 36% CAGR, never enjoyed such rich valuations,” it said in a note on 15 December.

The research firm said that D-Mart borrows many Walmart principles like operational discipline and product mix and customizes them for India. However, it added that accelerating store addition on own store model is challenging plus stores in smaller towns may have lower throughput and hence lower margins.


(nowin) #243

Ambit had a negative view on Indian stock market in Dec 2016. They had a sell call on Bajaj finance as well. Check out this report wherein ambit confessed that they gave wrong sell calls

http://reports.ambitcapital.com/reports/Ambit_AsiaMoney2017_AmbitOurbiggestmistakesoverthepast12months_11Jul2017.pdf

So I think there is nothing wrong in reading these research reports but remember experts are never 100% correct. Thats what stock market is all about.

When Hyundai came to India ,there were so many reports suggesting that Maruti will not be able to sustain its high market share and its next to impossible to maintain the margins. But we all know the how Maruti sustained market share and its Nexa segment ia doing extremely well.

I am invested in dmart ,and the strongest point is its management. Management quality is something that cant be quantified.