Avenue Supermart: a compounding machine?


(thecroc) #925

Is “Exclusive DMart Ready Deals” section new on the Dmart Ready website : https://www.dmart.in/
?
Also something to mention is the pickup points.
40%20PM

Can’t resist saying the website is very likeable now as compared to before.


(weblinsolutions) #926

Big Bazaar is aggressively pushing prices against Dmart now a days. Our local dmart employees were saying they can feel a reduction in the number of shoppers visiting Dmart. KB is taking Dmart head to head but I don’t see it benefiting him as he don’t have the cost advantage of Dmart but I am sure that he will not let Dmart grow at aggressive pace like before by pushing the prices. Big Bazaar is also going aggressive with their cards and future pay based offers in the store. Smart shoppers are moving towards Big Bazaar Profit Club Cards and planning how to shop in advance now a days. I had written a post a month back how Big Bazaar Profit Club Cards is a better deal compared to Dmart. https://www.desidime.com/forums/hot-deals-online/topics/10-cb-on-big-bazaar-gift-vouchers-hurry?page=2#post_5412406

They are also giving free shopping every year. This is the second time they have added free shopping benefit in a few months. I have got rs. 400 x 6 cards = rs 2400 worth of free shopping improving the ROI further. https://www.desidime.com/forums/hot-deals-online/topics/big-bazaar-profit-club-will-add-free-shopping-worth-rs-200-to-your-card-tomorrow

I am sure Fretail is making losses by going aggressive but this will surely stop Dmart from growing at the high rate. I think we are looking at a significant de-rating of the dmart stock just like Shankara in the coming times.


(kingzeusvj) #927

@bhisham @weblinsolutions @jamit05 @mrai74 @basumallick After Amazon’s intent to enter into offline model - What are the odds of Dmart doing a strategic partnership with ABC Player who is eyeing Indian market? With this partnership the now and then requirement of funds for expansion would also be taken care of + with this Dmart and ABC player would be ready with full ammo to take on Amazon + BB.

Disc. These are just personal hypothesis - but thinking on these lines can provide different paradigm to dmart shares.


#928

Did you mean bheeshma? although, there is a user by name bhisham.


(Bheeshma Sanghani, PhD) #929

Hi @kingzeusvj

Dmart is well capitalized and is generating more than enough internally to fund its growth. It doesn’t need any partnership in my view. I don’t think dmart has any targets for growth market share etc. Its focus rather is to invest in stores where it can break even quickly. If it doesn’t find locations like that it doesn’t add stores. It follows simple basic time tested retailing rules which have served them well. Simple stuff like pay suppliers on time, keep fast moving inventory, pass on discounts to customers, keep employees happy etc

Best
Bheeshma


(sincyvarghese) #930

DMart has extended store hours. Sometimes I buy from our local Reliance store. Even a Rs. 500 checkout is a pain. Same for Food/Big Bazaar. I will not extend my loyalty card.

The other thing is in Reliance and other stores you need to watch for the deals even during checkout. Sometimes you pick up things because a deal is mentioned at the shelf, but at billing we do not get the discount. They say the deal expired. This has happened for me in Reliance and in Food Bazaar. They may not be doing it deliberately but their processes are not very efficient. I don’t have time to watch out for every product during the billing. In DMart I know even if the deal is 1+1 I get 50% discount if I pick only one packet.

All these add up. Does that mean DMart is not overvalued? It definitely is. But then give me another quality retailer at better value. I am here for 10 years. I hope DMart falls 10%, 20%, 30%, 40%… I will pick up another 50% of my existing quantity.

If I am a very rich person then I might invest some money in Future Retail also. And if it makes big I get a great return on my investment. But I am an ordinary man and hence I will not invest my money in a potentially great investment instead of a boring but steady one.


(Vishal Bharti) #931

Views on DMART shared on CNBC by SiMPL

Somebody recently asked me about Avenue Supermart (DMart). I said it was a valuation challenge. Amazon was a valuation challenge earlier, as it had strong growth but was not generating cash. But the difference with DMart is that it is generating cash. Last quarter, they had sales of Rs 4,000 crore, so let’s say the annual sales are Rs 16,000 crore. Their net margins is about 6-7 percent, so they can make profit of Rs 1,000 crore. To generate Rs 16,000 crore of sales, they only require Rs 2,000 crore of capital. Let’s assume that they can grow at 25 percent for the next 10 years and maintain these margins and capital turnover. So the sales will reach Rs 160,000 crore and they will generate Rs 10,000 crore cash in 10 years. They will also have some cash on the books, as they will not invest all the cash flows. A company like this, which generates Rs 10,000 crore of cash, can easily be valued at Rs 250,000, plus they will have cash. The current market is Rs 80,000 crore. So it can be 3-4x in 10 years – which is better than keeping money in the bank – but I think there could be better opportunities over time. But you have to keep thinking and valuing businesses. If you think 10 times, you will know what to do when opportunities come.

So if you break up the value of the business – the first is how much sustainable money they are making. Like DMart is making Rs 1000 crore profit now, and you think that is sustainable. Now if you put money in a bank today – you get 6 percent interest rate, so the value of that Rs 1,000 crore is at least 16x (~100/6 percent), so Rs 16,000 crore. The second is, what is the minimum growth that you can project over the next many years? I take that at a nominal GDP growth of 12-15 percent. That will give another Rs 15,000-20,000 crore of value. So you can attribute Rs 30,000-35,000 of value to these. Then there will be other opportunities that the company can exploit – that the market is valuing at Rs 45,000 crore today. The composition of these three changes over time. At some time, the first component accounts for 70 percent of the market capitalisation and the second component accounts for 35 percent of the market capitalistaion of the company. Which means the third component is negative 5 percent, which the market is not willing to value. In bear markets, the capitalistaion might even be lower than the first component of the value, and you find that the second component definitely has some value. So one can wait for situations where working backwards one has to make less assumptions on the second and third components. If one has to make detailed calculations to justify valuations, then it’s probably not worth it.


(Bheeshma Sanghani, PhD) #932

Leaving the question of valuation aside as ppl have different views and all seem to contain a grain of truth, to generate quality cash in a retail operation is really an achievement.


#933

@bheeshma what is the difference between quality cash and normal cash? Is quality cash called because those cash generates through lower cash conversion ?


(Bheeshma Sanghani, PhD) #934

hi ranjan

by quality cash i mean generating cash in excess of core business requirements. This cash can then be used for various purposes mainly to expand the business , payback principal debt, distribute it to shareholders, buybacks etc.


(mrai74) #935

Despite DMART’s EBIDTA margin had declined by 0.1% and stood at 8.6% in six months ended on 30th September 2018 as against 8.7% in the similar period in the previous fiscal, it has outperformed major indices in last 2-3 months.

The rating agency CRISIL believes that ASL’s credit risk profile will continue to benefit on account of improving the market position in the organised retail segment, strong annual cash generation, and the healthy financial flexibility.

The ramp-up in operations will be supported by the increase in new store rollout (25-30 stores per annum) and healthy growth of about 15% going forward. As a result, CRISIL expects ASL to maintain about annual growth of 20-25% growth going forward.

Currently, ASL’s operations are largely concentrated in West and South India. Expected large cluster focused store addition over the next 3 years will benefit to diversify geographic reach of the company. CRISIL believes strong track record of outpacing its peers in growth, its strong merchandising and compelling value proposition, benefit of economies of scale will help to strengthen ASL’s market share in organised food and grocery retail in India in the medium-term.

Further, the company has also initiated to ramp up its online strategy and a platform to support future sales channels. Improvement in geographic diversity along with sustenance of healthy operating performance will be key rating drivers in the medium term, CRISIL said while reaffirming its ratings on the bank facilities and debt instruments of ASL on October 26, 2018.


(mrai74) #936

While the debate continues for supremacy / survival / better growth about mortar & online business, following report shows positive signs for our company


(Bheeshma Sanghani, PhD) #937

A very good article on short selling.

The article ends with the following words " we asked traders which stock would they like to short. The unanimous answer was D-mart"

The sentence above is an allegory. RKD was most famous for being a short seller in his heydays. After a legendary stint short selling, he abruptly quit the markets to concentrate on building dmart. In trading circles - there are many who want to recreate those epic high octane battles.

Best
Bheeshma


(Vishal Bharti) #939

(Deepak Venkatesh) #940

Hi

This is indeed a very big move in the eCommerce space.
Some very impactful decisions included now:

  1. While 100% FDI under automatic route is permitted in marketplace model of e-commerce, FDI is not permitted in inventory-based model of e-commerce.
  2. E-commerce entities providing marketplace CANNOT exercise ownership or control over the inventory i.e. goods purported to be sold OR directly or indirectly influence sale price of goods or services & they SHALL maintain level playing field.
  3. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from marketplace entity or its group companies.
  4. Entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, cannot sell its products on the platform run by such marketplace entity.
  5. Any cash back provided by group companies of marketplace entity to buyers has to be fair and non-discriminatory.
  6. E-commerce marketplace entity cannot mandate any seller to sell any product exclusively on its platform only.

These are tweets by Department if Industrial Policy & Promotion.

The timeline is 1st Feb. That’s hardly 25 working days. I have seen some other policies being implemented and no extension given.

Let’s see how the landscape changes on such a short notice and how entities react.

Regards

Disc: I work for an e-commerce company.


(Vishal Bharti) #941

Hi Deepak,
Can you explain the guidelines with an example?
will eCommerce companies won’t be able to sell their own brands like Vedaka of Amazon, Grofers self brands etc.? What about Amazon Pay or PhonePe - will they need to discontinue?(or are they not affected) In the end, won’t all this help the brick and mortar companies like Dmart which can sell its own products also? or something else also?
-Vishal


(Bheeshma Sanghani, PhD) #942

I think its a good move. The basic purpose of a marketplace is a meeting point of numerous buyers and numerous sellers leading to price discovery. Marketplace entities are likely to reconfigure their setups and position them as a service to these numerous vendors. They have made considerable investments in setting up the infrastructure. Contrary to what we think they are not many profitable sellers on online marketplaces and the ecosystem is very rudimentary. The policy is designed to motivate marketplaces to develop the ecosystem.


(Rajkamalpol) #943

This is an extremely regressive move. Time and time again the Indian marketplace has been held hostage by these kinds of moves. It seems more like a political gimmick considering the 2019 elections.

No one gains - neither the consumers nor the small sellers.

I wonder what will happen to all of the small firms that make their own products and sell exclusively through e-commerce.

E.g. Many food brands are e- retail only as the cost of distribution is cheap; will the rule impact them as well?


(Bheeshma Sanghani, PhD) #944

Hi @Rajkamalpol

Amazon & Flipkart have created complicated holding structures through their subsidiaries. Its subsidiaries essentially account for a major portion of sales. 100% FDI is permitted in the marketplace model but not in inventory model. Amazon/Flipkart through these subsidiaries and holding cos based out of Singapore have positioned themselves as marketplace models but in reality they run inventory models - where FDI is restricted.

In contrast, look at Alibaba - which follows a pure marketplace model and has actively developed the ecosystem.

The main thrust of the government is to have these dominant players develop the ecosystem for all in an equitable and fair manner. So far, they have been able to avoid the regulatory restrictions by creating a lot of subsidiaries however, in my view its a good move as establishing a level playing field for everyone to enjoy the benefits of a robust online marketplace is needed.

A good article on this aspect was published by the-ken


(Jimit Rajeshkumar Zaveri) #945

The supermarket chain of DMart stores is owned and operated by Avenue Supermarts Ltd. (ASL). DMart was started by Mr. Radhakishan Damani. From the launch of its first store in Powai in 2002, DMart today has a well-established presence in 158 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab, and Rajasthan.

Annual Report Review FY2017-18