Avenue Supermart: a compounding machine?

(Deepak Venkatesh) #946


Marketplaces are already serving any seller who is willing to sell on their platforms. A lot of resources and investment goes into making a seller’s 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, it’s 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 vendor’s as well as marketplace’s 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 doesn’t 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 Amazon’s 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 don’t tinker and try to control things when the seed goes to an offshoot stage. It is almost like a ‘Hayek’ way of let the market figure it out. Only when there is ‘worth’ 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 ‘misuse’. 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 ‘Customer’, is it truly the customer you and I or someone else.


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.

(ravish) #947

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.

(Bheeshma Sanghani, PhD) #949

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!


(kingzeusvj) #950

@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? Don’t you think govt. imposing restrictions on inventory based e-commerce a good move for sellers/traders on FK or Amazon @deevee Your inputs?

(kingzeusvj) #951

As per february visit of Reed Hastings - there are 100% chances of Netflix piggybacking Jio’s fibre plans.

Source - https://factordaily.com/netflix-jio-partnership-in-india/

(kingzeusvj) #952

From this statement I remembered a humorous statement from my friend who’s earning his bread and butter by investing/re-investing in startups:

Entrepreneur - I am building Quora for blue collared workers
Investor - So it is another Metoo startup; I am not interested in funding it.
Entrepreneur - Sir it has good MOAT compared to Quora
Investor - I am still not interested
Entrepreneur - Sir, we are based out of Republic of China; and our target markets are Shenzen, Goungzou, Foshan, Youngzou and so on…and this is also one of the MOAT
Investor - How much amount you need for scaling up?

(mrai74) #953

Its always nice to listen RD

(Rajkamalpol) #954

From a customer standpoint and by customer I mean the end user Amazon, Flipkart or even a Netflix has provided choices that were previously just not achievable. I still remember 5 years back when I was trying to buy a washing machine most of the offline retailers were not willing to give a paisa off, were overpriced and one guy even refused to provide a home delivery after the customer (me) planning to spend around 25K.

I went ahead and bought from Snapdeal.

Similar options exist in electronics. For those who are interested, the choice in CPU’s, motherboards, ram types, SMPS etc…provided by an online retailer far exceeds anything that the offline world used to provide. (I quote this example because I am somewhat of a computer enthusiast and have dabbled in the world of PC graphics, gaming etc…for almost 2 decades now and have personally seen and experienced the change.

Also as mentioned before in this thread, small customers and new age entrepreneurs are also benefiting. I see so many home grown food brands in Amazon or Flipkart which I have never seen before.
Maybe it hurts a small group of powerful organized retailers but good riddance to them. I would not personally want to go back to the old days for no reason.

(Ranga Kiran) #955

FY 19 Q3 results are out

(Bheeshma Sanghani, PhD) #958

Mixed set of numbers from Dmart. The negative obviously is the reduction in margins - due to front loading of expenses and spending due to the festive season. These clearly are temporary. The reduction on gross margins - now at 14.7% - needs to be viewed in light with historic averages. My sense is that they will maintain it at 15%. The growth rates of sales/gross profit/ EBIT and PAT are 33%/20%/5%/2% respectively.

The good is the great growth in topline of 33% that too on a high base - which indicates a stellar gain in market share. Only a retailer will tell you how important growth in topline is for a retail operation - ultimately a business chugs along at the topline growth level.

The D-mart story is very well intact in my view.



(EL) #959

Could the revenue growth be due to inflation ?

Probably some of it atleast, what is most likely real growth rate


IMO, it could be inferred that sales growth is due to discounts etc leading to lower margins. Inflation is benign and that is not a great thing for a retailer.

(mrai74) #961

No of stores have reached 164 with 6 new stores opening in Q3.

Quarter Wise Stores in FY18

1 Store was added in the Q1FY18
4 stores were added in the Q2FY18
5 stores were added in the Q3FY18
14 stores were added in the Q4FY18

5 stores were added in the H1FY18
Total = 24 stores were added in the FY18

Quarter Wise Stores in FY19

2 Stores were added in the Q1 FY19
3 stores were added in the Q2 FY19
6 stores were added in the Q3 FY19

5 stores were added in the H1FY19

As store opening is on expected lines & Growth in top line is also fine. Flat PAT may raise minor concern as it could be due to festive season.

Neville Noronha has clarified that the company’s topline continued to grow well, even though profit after tax (PAT) growth remained flat vis-a-vis the corresponding quarter last year, primarily due to gross margin reduction on account of price cuts.

“Operating costs inched upwards due to preloading of certain expenses - primarily around capability building across infrastructure and people,” he added.

(nav) #962

Image speaks a lot about this super expensive stock!

(Amit Jain) #963

Views that show the negatives of a company that is perceived as super-good are absolutely invaluable, because a company which people are vehemently justifying paying 110 PE for, anything negative cannot possibly come to their minds.

Here we see that profit has been dropping for three straight quarters. Revenues may be increasing, but this is the trend these days with the new-agey retailers. They give hefty discounts to keep the numbers well dressed or let the customers get a feel for their way of retailing; And when they stop the discounts, revenues often dry up too.

I dont know how 110 PE types companies have behaved in the past; has the profits growth slowed down? And when they have, has the high PE sustained?

(Gurmeet) #964

I think 33% sales growth is due to festive season but there is no profit growth due to more discounts are offered to retain customers because intensity of competition has increasing as Dmart strategy is being adopted by Food/Big bazaar & Reliance retails of everyday low price offers.
This is a third quarter in a row without meaningful profit growth.
A couple of more quarters without profit growth and stock price may start going south.
Views of other participants required on the topic.

(phreak) #965

Appears to be a classic double-top, coming on the back of below average results. Page took a 40% beating from the top (as of today, can’t say bottom has been found) on the back of tepid results which couldn’t back the valuations. I suspect same could be the case here. 40% from the top would be around 1000 levels. I see value around 800-850 levels but doubt if it will get there as the 1700 high will act as a price anchor.

(sumit680) #966

I would like to highlight following points which have emerged after discussion with my equity adviser-

  1. We all visualise that market is ready to pay a particular high price to a particular stock. But this high price is a result of demand and supply equation. Prices can go high due to excessive demand or short supply…the later may be a case with D-Mart…we need to quantify the availability of its shares in the market…as i know its much less as compared to other stocks as majority is being owned by the promoters…The balance 15% or so which is available in the market may be in the hand of very few who might be creating a artificial short supply…so with the reputation of a great business along with a short supply creates a recipe for high valuation. Those very few might be people with very deep pockets who have the capability to influence the market and if these big bulls do not release the supply, high valuations will continue.

  2. If promoters have recently sold the shares at a PE of 40, this gives us a hint about correct valuation for the stock. A lot of clarity emerges when we compare the stock with the real estate. If a person is selling a land at some particular price and the seller happens to be a savvy investor himself who is well versed with the future prospects of the Indian Market, he will not certainly sell his property at a huge discount. Only in the situation of great financial distress, he will opt so. But this does not seems to be the case with D-Mart promoters. For them, they needed good money which can be utilised for the expansion of the business. So they must have not sold it at a great discount to its intrinsic value.

Promoters of India’s favourite drink frooti have never bothered to launch an IPO because they have ample money…

  1. I wonder which are those institutes and professional money managers who have purchased at a PE of 100…i think mostly they will be retail investors and as always retail investor will lose money in the game.

With these thoughts, a 1 year past PE below 40 is suitable to enter which in turn means a long drawn patience. Even a 1 year fwd PE of 40 with a visibility of 20% EPS growth currently means a price of 688.

This a hypothesis of mine as i have not really collected any data but just went through the threads of fellow investors on this forum. I request for your views as D Mart present a good learning lesson for us…( not invested but resisting hard to not buy at an overvalued price…:blush::blush:)


Hi @bheeshma

Management mentioned that

  1. Operating costs inched upwards due to pre loading of certain expenses primarily around capability building across infrastructure and people.
  2. We also overspent a little to manage the festival season better through longer operating hours.


A) if we see Expense ratio perspective it is 6.4% compare to 6.1% which is not a big rise . How management is claiming that Operating Cost get increased?

B) Purchase/Sales is 83.6% q3 fy19 compare to 77.8% of q3 fy18 which is huge increase . Seems due to price Cut . This actually reducing the Gross margin . How can FY19E Gross margin will be still in 15% level if this trend continues?

(Bheeshma Sanghani, PhD) #968

Hi @ranjan_r

This is the trend of Dmart Gross Margins over time. The average gross margin of the last 8 years is ~15%. Gross margins are just reverting to that.

Operating expense % has gone up by a few basis points as highlighted by you but not by a great amount but in retail a few basis points is meaningful esp in dmart.

The gross margin is expected to bob around 15% as far as i am concerned.