Avenue Supermart: a compounding machine?


(sagar_amula) #473

I dont think institutional investors will buy at this staggering PE multiples this is the only reason i can think of otherwise business is exceptionally good.


(MD RH) #474

Promoter must do OFS if they want to sell their holdings as per sebi guidelines . And why should promoter do private placement? Private placement is a tool to raise Capital which is already done last year.


(Varun) #475

“In addition to existing methods such as an offer for sale and institutional placement programme, Sebi has allowed two new avenues for companies to meet the MPS norms. These include the open market sale and qualified institutional placements. Promoters, however, can dilute a maximum of 2 percent under these new routes.”

I think a market sale is a cheapest and easiest option. Why should I spend money on finding a buyer when I know it will be easily taken up by mutual funds or institutions from open market?

Disc: Not Invested.


#476

Keep in mind that Avenue has been added to Msci India and in June there would be a massive flow of foreign passive money which tracks index. UHNWI and institutional money is already front running this and will be selling there shares into the incoming liquidity to book profit.
All these deals which happen in open market need to be negotiated in advance. The incentives for institutional brokers to keep giving buy reports is so that they get some of the brokerage for these deals.

Vakrangee was also added to MSCI India in November and unsuspecting foreign buyers allowed operators to book profit. Market price can be artificial in the medium term until a lot of people express their opinion. More public shareholding means more difference in opinion.


(MD RH) #477

Agreed. Moreover , Why will they dilute by doing private placement ? They are generating so much positive cash from Operations and have negative Debt/Equity.


(Deepak Venkatesh) #478

Hi

I hope this is not going to be an endless cash burning exercise.

Quoting few portions (as allowed by The Ken for subscribed users)

In the shadow of these big-ticket moves though, a dark horse is stirring. Over the last 18 months, the RK Damani-promoted Avenue Supermarts has been discreetly experimenting with the e-retail space. Focussed primarily on food and grocery, the company looks set to be the latest addition to an increasingly crowded online grocery sector. That this has been relatively under the radar is a feat in itself—the company, which operates the D-Mart supermarket chain, is the largest Indian retailer by market capitalisation.

Avenue E-commerce is a loss-making venture. In the year ended 31 March 2017, Avenue E-commerce had recorded a revenue of Rs 1.5 crore ($220,650) and a loss of Rs 26.1 crore ($3.8 million). Avenue E-commerce was D-Mart’s associate company till 1 February 2018, with the latter holding only a 49.21% share in the company. D-Mart acquired the rest of the stake from its promoters, and hence, the 2018 revenue (and loss) of the e-commerce business is incorporated in the overall revenue of Avenue Supermarts. However, in a report dated 6 May 2018, Kotak Institutional Equities (KIE) pegged the loss of the e-commerce business to be upwards of Rs 40 crore ($5.8 milion).

In other online grocery delivery news Milkbasket a Gurgaon based startup receives funding from big names. Unilever and Lenovo for the first time have invested in India via Milkbasket.

Though these online channels cater to a niche sector it seems there is a land grab moment in play. The last company standing will be the one left with some change in his pocket :blush:

Rgds
Deepak


(thecroc) #479

I don’t agree with the “stealthy” nature being projected in the article in Ken and I feel there is no need to be stealthy. Navil Noronha has been very straightforward in communicating the company strategy.


(ramanhp) #480

Was reading this yesterday. The E-Commerce journey is hard and cash burning and Avenue just started it. The comforting is that it is conservative and trying to mature a model. This might not be easy but needs to be seen.


(Deepak Venkatesh) #481

Hi

Prof Damodaran just came out with his views on the Walmart Flipkart deal. A good read related to this industry.

https://t.co/vSCxcgnVu1?amp=1

Rgds
Deepak


(shreys) #482

In my humble opinion, the demographic that shops online is very different than the one that shops at DMart. Totally anecdotal evidence - Online grocery shoppers, in my acquaintance sphere, are typically urban area residents, starved of time, desirous of trying gourmet food and not hesitant to spend more on brands perceived to offer higher quality.
Ecommerce is definitely is worth the effort. But, in my limited understanding, I don’t think it can be a contributor of profits.


(ramanhp) #483

It would be interesting to see the e-commerce that Avenue will employ. The obvious concerns indeed remain and Dmart doesnt seem to see e-tail has a major revenue generator. The plan seems to have strong e-tail in urban areas where it doesnt have stores and focus on a much lower economic ares for brick and mortar business. It is trying to have the best of both. Very tough but will be a good watch. That the promoters are conservative and have feet on ground gives me some confidence.

Disc: Not invested but closely watching.


(Darkwanderer79) #484

And so it begins…


#485

Seems liquidity was never a problem for Dmart. 62 Lakh shares sold in last 3 days.


(MD RH) #486

If supply demand issue so important , why Gruh,Nestle,Asian paints,Page Industries etc always quote at astronomical Valuation despite of High Liquidity ? Why they always refused to come down during any downturn even if their growth slowed down? We should seek this answers ourselves.


(Bheeshma Sanghani, PhD) #489

Dmart investor presentation. Interesting read.


(Mahendra243) #490

any reason we can think of for deteriorating like for like growth?


(atul1082) #491

@bheeshma thanks for posting.some of the members incl you having better understanding of financial terms used and graphs drawn, it would be beneficial for other members of u could add your +be/-ve observations noticed in presentation


(Bheeshma Sanghani, PhD) #492

Hi @Mahendra243

It has added 45 stores in the last 2 years i.e new store additions not considered for LFL growth form 29% of its base of 155 stores and the remaining considered for LFL i.e 71% are old stores.

As it continues to add more and more stores, the older stores will form a larger % in its overall base reducing the LFL growth further as newer stores have better growth rates and growth rates for older ones peak out at some point.

I think one should expect the LFL growth to drop further and settle in line with the growth in retail spending i.e between 10% to 14% as indicated in the presentation.


(kanvgarg123) #493

You haven’t considered the fall in revenue because of GST. Your hypothesis would be proven corrected if they grow on this base after GST base effect settles down.
Disc. Exited at 1500 and waiting for an entry point.


(ranjan rakshit) #494

Hi @bheeshma,

Taken from another thread…

On EBTIDA Margin perspective How to know that How much scope of EBTIDA margin improvement possible from here 8.9% ? In todays Analyst meet management told that Gross Margin is peaked out but that does not mean EBTIDA margin will not improve further.

I searched articles in Net to do more research on this and found following input from management.To me there are still scope of 150-200 bps margin improvement possible here if they can tweak the sales ratio towards general merchandise and increase sales of private label brand . Please correct if I am wrong.

1.But since margins in this business are wafer thin, inventory turns are the key. “The trick lies in driving footfalls through grocery and then selling higher margin items such as toys, crockery, garments, home appliances and footwear,” says Noronha. “It’s the groceries that get shoppers in, but the general merchandise that drives our profits,” adds Baheti.

  1. Private labels to aid margins

For every 5 percent increase in D-Mart Premia’s (ASL’s private label brand in grocery items) contribution to the total turnover, on an average, its operating margins could rise by roughly 20 bps.

  1. On the other hand if they change their business from ownership model to lease model then there could be pressure in Margin also