Did you mean bheeshma? although, there is a user by name bhisham.
Hi @kingzeusvj
Dmart is well capitalized and is generating more than enough internally to fund its growth. It doesnât need any partnership in my view. I donât 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 doesnât find locations like that it doesnât 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
8 Likes
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 donât 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.
3 Likes
Views on DMART shared on CNBC by SiMPL
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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 letâs 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. Letâs 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 â which is better than keeping money in the bank â 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 â 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 â 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 â 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 itâs probably not worth it.
4 Likes
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.
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.
1 Like
Despite DMARTâs 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 ASLâs 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, ASLâs 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 ASLâs 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.
While the debate continues for supremacy / survival / better growth about mortar & online business, following report shows positive signs for our company
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
4 Likes
Hi
This is indeed a very big move in the eCommerce space.
Some very impactful decisions included now:
- 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.
- 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.
- 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.
- 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.
- Any cash back provided by group companies of marketplace entity to buyers has to be fair and non-discriminatory.
- 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. Thatâs hardly 25 working days. I have seen some other policies being implemented and no extension given.
Letâs see how the landscape changes on such a short notice and how entities react.
Regards
Disc: I work for an e-commerce company.
6 Likes
Hi Deepak,
Can you explain the guidelines with an example?
will eCommerce companies wonât 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, wonât all this help the brick and mortar companies like Dmart which can sell its own products also? or something else also?
-Vishal
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.
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?
6 Likes
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
7 Likes
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.
Hi
Marketplaces are already serving any seller who is willing to sell on their platforms. A lot of resources and investment goes into making a sellerâs journey seamless and profitable. A lot of sellers are only ecom specific and have made money from this channel. If we dig down deep into what the regulations say, itâs quite odd and I am not sure how this has been drafted without a proper thought process.
For instance, the earlier notification said that a marketplace cannot have any vendor which sells 25% on its platform and the new one says that if the inventory of the vendor has more than 25% on a marketplace it will be deemed that the marketplace has control on the vendor. So the control has gone from the marketplace to the vendor in the new one also. Then the regulation goes on to say that apart from having control via inventory as described previously even if there is any equity holding of the marketplace in the vendor then again it will be deemed to be controlled and thus such a vendor cannot sell on the marketplace. The way to monitor 25% sales from vendorâs as well as marketplaceâs perspective will be operationally very challenging. Another example is digital content cannot be sold. Then who will consume Netflix, Prime Video, Music, Kindle Unlimited etc. Will Netflix sell all their content to multiple Indian entities and then they will all sell on Netflix marketplace making sure 25% of the movies/series limit doesnât overshoot.
The kind of infrastructure which has been built will simply be put to naught if the vendor equity holding clause is held. Walmart has 5 odd % of its value invested in Flipkart. Amazon has 0.2% in India as per publicly available news. Also suggest read Amazonâs 10k filings risk disclosures. Take for instance Netflix again, think why their payments are routed through outside India. Netflix has tremendous plans for India though. They will perhaps be in the doldrums too now.
I can draw a parallel to China. There is one beautiful thing which I noticed there. The regulators there let a fledgling industry grow, they donât tinker and try to control things when the seed goes to an offshoot stage. It is almost like a âHayekâ way of let the market figure it out. Only when there is âworthâ in the ecosystem created that it comes up with regulations. In our country its a little convoluted, we have this deep desire to ascertain our regulatory power right from the word go. If payments happen make a dozen regulations on how to curb âmisuseâ. There is no use from where will misuse happen! If a Whastapp makes payments seamless all the local companies jump up and start crying foul. At the end of the day we should be thinking Customer Backward and that is the core tenet on which businesses should work.
Alas, I know the question remains who is the âCustomerâ, is it truly the customer you and I or someone else.
Regards
Deepak
p.s. I work for Amazon. All this is publicly available information and my personal opinion having seen the world of payments for almost a decade and the kind of rigorous regulations it has seen. Views are highly opinionated. Also I am invested in Dmart since IPO and RIL since I started investing.
12 Likes
It is not me who would decide how amazon should do its business but when i see what is happening in current situation, i feel the monopoly in any business is bad for customers. As a market place eCommerce platform should charge for service they provide to the sellers listing. Ecom platforms also dictates sellers not to sell on other platform and many more restrictions.
Hi @deevee
Thanks for the views and incremental information. There is a general consensus that the policy has not been worded properly and that leaves it open to interpretation esp the inventory clause and the equity clause. From some people that I have spoken to, an entity can have more than 25% sales through online provided it keeps inventory levels low. The policy though in an indirect way is meant to prevent hoarding of goods and influencing prices.
There will always be pros and cons wrt to regulations with convincing arguments from both sides!
Best
Bheeshma
3 Likes
@Rajkamalpol So you mean to say Amazon analysing fast selling products and then selling them under brands Myx, Solimo, Tenor, etc. through their holding companies CloudTail or Green Mobiles or Retailnet [FK case]; and at the end squeezing small traders by way of visibility and less charges to their holding companies is a right practice? Donât you think govt. imposing restrictions on inventory based e-commerce a good move for sellers/traders on FK or Amazon @deevee Your inputs?