DMart was destined to grow big… It is poised to grow even more if they adhere to the plan we made after our second year of operation. DMart’s model is such that the first 10 stores will fund the next 10 after four years of operation; these 20 stores will together fund the next 20 after eight years of operation.
At that rate, DMart would have over 150 stores in 16 years. The count of stores is almost what we projected in 2002. This strategy brings down cost and capital requirement si …
Will it survive the online onslaught?
To plan a store of 15,000 sq ft, one has to target a neighbourhood potential of 20,000 families with Rs 2,500 as minimum spending in a store that offers basic day-to-day needs. There can be at least 8,000 such locations in India. This will account for 50 per cent of the population only. So the potential is very high.
Most of the companies you have on the list have erratic earnings. Idea for example has been posting losses in the last two quarters. PE is calculated on TOM basis hence EPS will become very low and hence high PE. Similarly Titagrh wagons is loss making on TTM basis. The PE is not relevant. For DMart current PE expects very high growth. Further the company has been consistently posting good numbers. Even then such high PE is ridiculous. In Indian market PE doesn’t matter. Its supply demand now. Free float being lower and the business model being great, prices are high.
Whether DMART is fairly Priced or Overvalued at the CMP ?
My understanding - During the technology boom , WIPRO was trading at 500 PE , Infosys was at a PE of 322. So we cannot say that DMART is overvalued , only based on PE . If you look at the earnings it will be at a PE of approx 100 currently . I would conclude that in order to maintain its current valuation , it needs to show Good growth , Also further PE expansion can come due to low float also.
Growth should be funded by internal accurals(i.e. ROCE > Growth Rate)
Dmart has high growth but not great ROCE compared to growth. I guess thats reason why they used IPO to fund future growth. Is there any indications of DMart adopting asset light model like online order(as mentioned in this thread about selective areas in Mumbai) or Franchise model ? Becauze wrt current capital intensive approach, they look more like Real Estate investment company.
Moreover, currently company saves on rental cost becauze of past real estate investment which boosts margin. But that means in order to grow further their margin from future stores will be lesser.
Ofcouse Promoters are smart/domain expert AND maybe that matters a lot than analysis-paralysis by amateur like me.
But just thought of adding this question regarding future growth funding(and I am not at all talking about valuation)
Found this nicely written article on how Dmart has created a self-sustainable winning system with the simple focus of providing the cheapest price. Customers never have to worry about price as they know they would probably get the best deal possible. So, they end up buying more than they need.
Since, vendors also get their dues in the fastest time, they do everything in their power to see Dmart gets the best deals and and market intelligence.
I shop at dmart, big basket, and Amazon pantry. The change to online shopping will happen slowly and nothing can stop it. The current overlap is very less but will improve over time . Amazon had ensured to destroy every competitor , direct or indirect, offline or online!
I am not invested in d-mart. However, as investors there are more inherent uncertainties in the online space than in the brick & mortar retailers space. The business of d-mart is less difficult to understand compared to amazon or any other online business.
Looking at way market valuing this stock, seems like RKD is generous guy. RKD being Marwari person, I thought he was selling DMART at premium in primary market
But one thing I observed “With increasing assets their margins also rising. So I guess DMART have scale advantage”(My assumption was with rising assets their margin will fall as they buy real estate assets)
The valuations for this kind of flawless high growth stock would always look stretched… one has to risk 2-3 years ahead to understand value.
Peter Lynch cited Wal-Mart as an example of a tenbagger that investors had plenty of time to buy. He said that investors who had purchased Wal-Mart 10 years after it went public in 1970 would have still made 30 times their money.
There are similar articles online about berkshire - how people missed it trying to be price sensitive…
Local reference could be HDFC and GRUH… when HDFC Bank was listed in 1995, Damani was the biggest individual shareholder in the bank. And he kept accumulating more. When a prominent player in the market asked him why he was buying HDFC Bank stock when there were so many other options available at cheaper valuations, his reply was: you can’t stay on Peddar Road (one of Mumbai’s most expensive areas) at Dharavi’s (Mumbai’s biggest slum) rates.
