Avenue Supermart: a compounding machine?

Stock Opportunities
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Hello everyone,

With IPO coming up, there is a lot of buzz about Avenue Supermarts Ltd which is the parent company of D-Mart group of shopping market. I guess given the price benefit d-mart is a preferred choice by the consumers (at least in Mumbai) over other competitors like big bazar, reliance retail etc.

The USP of the company is the is huge land bank in metros and tier 2 cities which saves a lot of lease rental expenses of the company. The proceeds of the IPO would be used to reduce a large amount of debt from its book in turn reducing future capital commitments towards principal and interest.

As of March 31, 2016, the company had a revenue of Rs 86 bln and a net profit of about Rs 3.2 bln, translating into an earnings per share of Rs 5.67. If the company is being listed in the highest price of the band i.e 299 due to brand and reputed investor Mr R.K.Damani holding majority of stake, resulting into a PE multiple of 50+.

Is it a worthy bet? Would like to know your comments on the same.

Regards
Shochis

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I think that it will get a thumbs up from Mr. market as current grey market price too suggests.
But margin and leadership sustainability depends on how it take forward the march to other cities(specially Tier II and III). Currently its heavily concentrated in Maharashtra and Gujarat. Also to note, since IPO buzz its comparable listed peers also ran up alot…!!

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PE multiple of 50-60 is too high…
no doubt this brand is well placed and dominant player in super market…
but price of share won’t rise much after listing i believe…
Same as BSE…listing you can say…

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The price it is expected to list at 490-530 range, huge HNI subscription will be there. if you go through the IPO filings you will be able to understand how well the company is managed. The price it has fixed IPO is expensive around 40 PE and at listing it will be around 50-60 PE , it definitely is not cheap, but my take is once they use around 1000CR from IPO to reduce the debt , that will have a straight impact on profit and the stock will trade at very high valuations. Reliance has sales of 18000cr and profit of 380 cr , while dmart has 8000cr sales and 300cr profit, so it will command higher valuations. Its going to be heavily subscribed and chances of allotment is very less. One another benefit of the company is it owns most of its stores so its asset rich and they have well taken care of rental income issue. My take is it will become the wallmart of India .

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Its announced at price band of 225-229, at much lower than what market had expected earlier.

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@sko5prasad i think the heading is wrong

Mumbai:
Avenue Supermarts, owner of supermarket chain D-Mart has set the price
band of its Rs 1,870-crore initial public offering at Rs 295 to Rs 299
per share.

Read more at:

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Yes I also noted that after going through article.

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Is there a way to better the chance of allotment? I tried IPO few times but failed to get even once. Then I left trying IPO. This time I want try again.

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Warren Buffet have started selling Walmart stock as he could see impact of online players like Amazon on people buying habits.

It may be a trend and may take many years to come to India. But something one should be aware of while paying high PE multiples in IPO frenzy.

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@Marathondreams it has a long way to go in India. and we clearly have a long term growth in dmart. The Valuation part is very correct but then again Credible Management and Proven business model is why these Kind of Valuations is being demanded.

@satya61229 if you are a retail investor try investing for 2 lakhs and see if you will get allotments.
Chances are very low. Even in HNI its going to be 200 times subscribed so hardly one will get 0.25% of the value of shares applied which is very less.

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If I apply just for two lakh then benefits will be small even If I got allotted. I read somewhere that there is cap for retail investors of 2 Lakh, that is why I asked here to confirm.
I will see by applying for just two lakh rs.

Is there a way to apply for more? I think if I could have two demat account then I could have applied twice !

12

Rentals and GST

Rentals are big part of operating cost for Retailers. For retailers, it attracts service tax of 14.5% Currently retailers cannot set off this cost like other industries. GST can help here.

My question is:
D-Mart own all retail shop of its own. If everything work as expected for Retailers in GST then Retailers can enjoy cost cut. Can D-Mart take advantage of it?

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@satya61229 retail investor limit is 2 lakhs , and you cant apply from two accounts as its 1 application per PAN number

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U can apply as HNI in HNI category if u wish to apply for more than 2 lakhs

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Thank you Sanjeevani1 for your reply. I feel rich for a moment that I am HNI. :slight_smile:

I read that if I apply for more than 2 lakh then I will be placed in HNI category. Correct? Do I need to do anything else as HNI?

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Dear Value Investors Friends,

Earlier in 2007-08, Reliance Power had raised large sums of money from retail innocent investors at huge premium to its “real worth”, later it turned out as the LAST PHASE of Market Euphoria…

The moot point here is: Why Damani Brothers are “extremely keen” to raise LARGE Capital from retail innocent investors and that too at “huge premium” to its “real worth”… can the HISTORY REPEAT itself this time around also???

Think over above core question and … then only decide what is best course of actions for you & for the safety of your hard earned capital !!!

Posted in larger public interest…

Wish you ALL profit with peace of mind !!!

ARB236

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@Marathondreams

Sincerely appreciates you web-link posted here about Wal-Mart…

Nice Job… Keep it up !!!

ARB236

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QUOTE:

Investing in IPOs.

Let’s be VERY clear about what an initial public offering is NOT. It is NOT “the ground floor” of a company. The ground floor was the Series A investment by the Venture Capital firms. You are not getting in on the “ground floor” with an IPO, you are financing the exit of the guys who got in on the ground floor.
IPOs are designed to take money from the public, not to give it to them. In fact, if an IPO takes off after launch that means the investment bank did not do their job right. IPOs, ideally for the owners of the company, should launch and stay about the same until their lockups are over. That means that the underwriter priced the launch correctly, and the owners maximized their profit by getting the highest price for their business.

Think about it: if you owned a unicorn company, would you go public at a time when the market would not give you top-dollar for your business? Of course not! You will go public when the market will give you the highest possible price.

You aren’t getting a discount, you are paying a premium.

— Franklin Parker, Chief Investment Officer for an ultra high net worth family & investment group

UNQUOTE:

ARB236

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Interesting data to chew on the global peers:-

Aldi Store

  1. Extract from the Bare Essentials: the ALDI way to retail success,
    Is ALDI really that special? http://ecr-all.org/files/is-aldi-really-that-special.pdf

  2. What makes Aldi stand apart - https://www.retail-week.com/sectors/grocery/10-ways-aldi-changed-retail/5015950.article

  3. Aldi’s Success in US
    https://www.forbes.com/sites/thehartmangroup/2015/04/14/aldi-is-a-growing-menace-to-americas-grocery-retailers/#2889372ff077

  4. Aldi’s Success in UK
    http://www.europeanceo.com/business-and-management/how-lidl-and-aldi-found-the-ingredients-for-success/

  5. How Aldi are winning the retail battle – and pressuring brands to be better
    http://www.mikeanthony.me/retail/aldi-winning-the-retail-battle/#.WL0BF9J97IV

Walmart Store

  1. Masters Of Compounding: Walmart ($Wmt) 1968-2012
    http://studentofvalue.com/walmart-1968-2012/

  2. Walmart Annual reports from 1972 - 2016 http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx

  3. CNBC The Age of Walmart
    https://www.youtube.com/watch?v=9vt2K_LP2Vw

Costco Store

  1. The Magic in the warehouse http://fortune.com/costco-wholesale-shopping/

  2. The fervent loyalty of a costco member http://www.scuttlebuttinvestor.com/blog/2017/2/21/the-fervent-loyalty-of-a-costco-cost-member

  3. The Costco Craze : Inside the Warehouse Giant (CNBC) (Documentary)
    https://www.youtube.com/watch?v=6ssZVi-7xoE

Books to read to understand the global leaders better:-

  1. Walmart History - https://www.goodreads.com/book/show/10631.Sam_Walton

  2. Aldi History - https://www.goodreads.com/book/show/17052789-bare-essentials

Disclaimer- As the promoter of the company is himself an astute investor; there is fair chance that the IPO is being priced at the maximum possible valuation they can extract which can even be seen by the fact that they delayed the IPO to post quarter 3 results (demonetization quarter). Do your own diligence before investing.

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QUOTE:

The proceeds of the IPO would be used to reduce a large amount of debt from its book in turn reducing future capital commitments towards principal and interest.

UNQUOTE:

Where is the ADDITION to the GROSS BLOCK to drive UP… Future Revenue ???

BTW, I am a regular buyer at ALDI Store in Cranberry Mall, Pittsburgh, PA, USA but Business Models of USA are much different than INDIAN MODELS… they can not be effectively compared for Retail Stores of India… as well as with the MIND-SET of Indian Consumers !!!

All Investments are valued keeping in mind MARGIN-OF-SAFETY…& POTENTIAL for FUTURE GROWTH !!! —

QUOTE:

Manish Chokhani, director of investment group Enam Holdings and a long-time observer of Indian equities, in an exclusive chat with Vishal Chhabria and Hamsini Karthik, says investors should brace for volatility, and keep some cash.

While pointing to the current bull run in mid- and small-cap stocks, he advises that only those investors with appetite to absorb shocks participate in this space.

UNQUOTE:

About FUTURE OF RETAIL IN USA:

QUOTE:

Too many stores, too much luxury: Macy’s looks to rewrite retail

Krystina Gustafson | @KrystinaGustafs
Thursday, 11 Aug 2016 | 1:54 PM ET

Macy’s CEO Terry Lundgren on Thursday delivered a long-awaited jolt to Wall Street, when he admitted the United States has too much square footage dedicated to retail. The company announced plans to shutter 100 of its 728 traditional Macy’s stores — a strategy bearish investors have been begging the company to pursue for more than a year.

By Lundgren’s own admission, industrywide there is 7.3 square feet of retail space per capita in the United States. That compares with roughly 1.3 square feet in the U.K. and 1.7 square feet in France.

UNQUOTE:

ARB236