Avenue Supermart: a compounding machine?

(Mridul) #515

In Indian context, we usually use 12-15%.

Screener.in as well uses 12%, i think.

It is sector specific i.e. highest for sectors such as real estate and EPC where the investments are considered more risky, while FMCG and Capital Goods enjoy the lowest cost of capital. Check this survey -

(Darkwanderer79) #516

Retailers may soon feel the pinch of the trucker’s strike

(bharat19) #517

I don’t see brighter future for DMart. Reason being , I am 23 and prefer buying from Amazon Pantry. Many in my place does the same as it offer’s great discounts as well as convenience to get products right at your doorstep. The valuations are also too high for discounting future earnings. I don’t see any decline in footfall for next few years but at one stage , a point may come where digital penetration will increase especially in rural areas and people might prefer buying things online.
Disc: No holdings as valuations are uncomfortable.

(S_Banerjee) #518

Not all the companies could be judged by valuations. Looking at the aggressive expansion process and future earnings generated through their business model, I would bet on Dmart for long term. Also mngmnt is a key for trusting this company.
Disc : Invested.

(bharat19) #519

Since the stock is listed 1 year back so no Annual Reports are available prior to 2017 !
The screener has Data for the last 10 years which is the basis of my study !
Cash flow from Operations in last 10 years are 1787 Cr
Total Capex done during the same time is 2774 Cr
Net Free Cash flow is negative around 1000 Cr
Adding to it is the interest payment during the period = 450 Cr which leads to total deficit = 1450 Cr (A)
To fund this deficit , the company took 1480 Cr debt + 1870 Cr IPO Proceeds + 180 Cr of other income which corresponds to 3530 Cr (B)
Net gain (A)-(B) = 2080 Cr
Depreciation accounted around 570 Cr ©
Overall net flows (A) - (B) + © is around 2650 Cr which is invested / remained as 1740 Cr of cash (increase in Cash and eq. in last 10 years) and 900 Cr in Inventory (Increase in same time period) amounting to 2640-50 Cr.
Note: Receivables / Payables figures are not that significant so excluded.
The point is that the business model is very different and these negatives can be ignored here. While in other business models , these factors make one worry about capital intensive nature of business. Here new stores opening will need huge Capex till the time company is growing and expanding into different parts of the country and may bear great fruits in future especially in form of dividends. No doubt on the promoter’s capability too.
But the Net profit margins are very low just around 3% of the sales. Also the business does not have any entry barriers. Too many competitors are there such as Big Bazar , Reliance Fresh , V-Mart and others too may emerge in future ! Online Mall’s is also growing at a good pace. The point i am making is that no matter how good the model is , does this deserves this kind of valuations.

I disagree. Valuations are very much important for any business in my opinion. That defines your returns !

Currently , it’s one of the street’s favorite/most wanted pick so it may be hard to digest my viewpoints !

(Darkwanderer79) #520

One of the biggest barriers to etailing in India is the prevalent consumer buying behaviour of “touch and feel.” In the grocery segment, it has a high impact in the way consumers shop. There will be a huge segment of D mart shoppers say the 35+ yr group which will not shift to Amazon Pantry overnight.

Maybe the younger consumers who are more comfortable with online shopping will be the 1st ones to migrate to Amazon Pantry. In any case that was never the core TG of DMart. So, for me the DMart story is still safe for some time.

(Vishal Bharti) #521

I also use Amazon pantry however have to buy in local market also due to unavailability of lot of things over there and also, because of delivery times(ranging from 1-3-4 days). Also lot of my relatives who are business men , I ahve observed they like buying in cash (and also look and feel) - they never want to shift to e-retailers. so, in short, the market is so huge , every player will have a BIG opportunity.

(ranjan rakshit) #522

I did some comparison of grocery prices between amazon pantry and DMart. Following are my observation…

  1. Price are 10-12% cheaper in DMART than Amazon Pantry.
  2. Varieties of Grocery products in Amazon pantry are very less. There are very less options of choosing the best and cheapest.
  3. For free delivery Minimum order price is Rs 600 for Amazon Prime Member. Delivery fee is Rs 30 for Prime customers and Rs 59 for Non-prime customers.

But my thought is here that How long Amazon continue to bear mammoth losses (year on year) incurred by the company due to their India operation? This quarter Amazon did better in International Operation that is also due to Improved margins in Europe, Japan which help Amazon offset India losses. Indian consumer behavior is very different from other countries due to their food habit . Here consumer prefer ‘touch and feel’ during buying groceries and apparels also.

(Bheeshma Sanghani) #523

Good set of results from Dmart again. Net Profit up by 43%. Margins have also improved. Q1-19 PAT margin stand at 5.48%. In Q1-2018 they were 4.83% and in 2018 they were 5.2%. Gross margin has dipped slightly indicating that they are trying to bring down prices further down.

Item Q1-2019 Q1-2018 2018 Growth
Revenue 4573.67 3621 15081.53 26%
COGS 3847.35 3041.99 12648.88 .
Gross Profit 726.32 579.01 2432.65 .
Gross Margin 15.9% 16.0% 16.1% .
EBITDA 4136.74 3294.95 13671.56 26%
OPM 9.6% 9.0% 9.3% .
Finance 10.02 24.33 59.41 .
Depreciation 40.33 33.71 154.65 .
PAT 250.61 174.77 784.68 43%
PATM 5.48% 4.83% 5.20% .
EPS 3.96 2.76 12.41 43%


(bharat19) #524

@Darkwanderer79 Packaged foods of brands does not require any touch and feel. Grocery (Fruits/Vegetables) do require touch and feel but how many people buy Vegetables/Fruits from D-Mart store need to be analysed. We have very small small retailers who sells vegetable/fruits at your doorstep.

India has 65% of population below 35.

@bharti_vishal Agree on delivery times but with the advancement in technology and supplies through drone in future, this time will be reduced. Also in Tier 1 and 2 Cities , the delivery time is 2 days.
Regarding Purchase in Cash , there is a facility of COD on E-Commerce.

@ranjan_r In my experience , I got better deals online than D-Mart though sample size is very low. Around 4-5 Items. Have to analyse more on this front.

Wont the petrol/travel/transport expenses will occur while going to purchase from D-Mart. Point is about convenience.

May be we are missing something here as if the Retailers would be operating in such losses , Walmart would have never bought Flipkart that too at extremely expensive valuations. Also lot of e-retailers like Paytm etc are too there. Have to look whether Paytm is profitable or not.

Overall , my point is that since the business does not have any kind of Moat , this does not deserve such valuations. Though at the moment , it is everyone’s favorite and business is growing at great pace with aggressive expansion but i do not see much bright future ahead.

(S_Banerjee) #525

By looking at gradually progressive quarterly numbers, people trying to bring down the price to enter in lower level would be utterly disappointed. In Q1 they added 2 new stores. We can expect few more takeover in near future.

(ranjan rakshit) #526

When you are giving Judgement here there is no point of doing constructive Argument :grinning:

(Vishal Bharti) #527

They have a moat. Their cost of operations is the lowest which helps in keeping the product prices the lowest. This drives customer loyalty. This is not an easy thing to do - and no doubt that’s the reason they have the highest profitability. Further, they have been successfully scaling with this model with higher and higher profits. Think of the opportunity they have to expand to all-India and it may become a HUGE cash-generating machine going forward. They are already earning close to 800cr profit a yea now. I won’t be surprised if this becomes 10,000cr in next 8-10 years.
Regarding e-commerce, they will also exist i think - but till when they can continue to operate WITH losses. How long they can continue to dole out discounts just to win customers. The day they decided to become profitable(and lessen discounts) - they will see a big shift to companies like DMART - whose prices , lowest prices are sustainable. Moreover, DMART has also started a pilot e-commerce thing - its not that they are ignoring it. Sustainability is the key.

(Darkwanderer79) #528

But not all 65% of the population is earning. Stats always hide more than they reveal.

(bharat19) #529

@S_Banerjee : Kindly refrain from commenting stuff like this which can suite on mmb but strictly not on high standard forum like VP.

@ranjan_r : It was my point , not a judgement. May be my words would have sound such but that was not the intention. You can counter by justifying these valuations and why will business sustain for long. What type of MOAT it enjoy ?

@bharti_vishal : Too much speculation in your points. Anyway there is too much competition mainly from Reliance Fresh or other such businesses. One simple thing , Physical stores like D-Mart needs Fixed assets and more manpower to operate while E-Commerce business are asset light. In any way , operating cost should be very less for E-Commerce.

@Darkwanderer79 : You mentioned 35+ Yr of Population would not prefer buying from E-Commerce . My point was that only 35% of population is above 35 and as per your argument , not all these 35% are earning too.

(Mahendra243) #530

Is Dmart accepting sodexo card payments now? previously when sodexo was issued in form of denominations/coupons…they were not accepting them…and i stopped going to Dmart as i cant use them…

(S_Banerjee) #531

Dear friend, there were numerous effort made from the very beginning of listing by different fund houses to bring the price down to provide their client a chance to get it in cheaper prices. People aware of this stock and tracking closely can relate this situation. So my comment was made in relation to that in a lighter note.

There is nothing to take personal(now whatever your motive is quite evident by the judgemental comments made by you)

And kindly refrain from advising me here what to do and what to not.

(LTInvestor) #532

The chance of anyone making on this stock is becoming lesser by the day. My bet you will lose money on a opportunity cost basis.

Let us say in 10 years profits hit 10000cr from current 1000cr (26% CAGR). Then at 10000cr profit let us say you give 30x PE. You get market cap of 3lakh crs from the current 1lakh crores. So even in the most optimistic scenario I think you will not make more than 11.7% return annually. Not bad but just for 11.7% return, I would rather buy the NIFTY. Anyday better risk-adjusted return.

Now for 1% reduction in profit growth, you will lose .89% of return. CAGR drops to 21%, you will make 7.3% return.

To me this one is looking like a Dilip Buildcon. Will halve anyday.

Disl: Got few measly shares on IPO. Sold on doubling.

(Vishal Bharti) #533

Different views make a market. And that is fine.

(Rushil) #534

The issue with that argument is that dilip build on had no free cash flow. This company will generate around 1000 core of free cash. So there is really no comparison.
Though I agree that this won’t compound capital a lot from here but I don’t think it will fall much and even if it does one can buy more if results continue to be so good.

Not Invested.