So the end game PE is taken as 15 and this is the maximum PE to pay for companies who have reached saturation stage. ? Did not get saturation stage remarks.
Food for thought:-
1.In market capacity terms, Dmart is just 0.3% of available opportunity as on march 2019.
2. DMart’s stores generate more revenue/square foot than Walmart – $530 versus $450 for Walmart Inc (WMT) in F19.Given that unit cost in India is about one-third that in developed markets, the throughput for DMart is 3.7x that of WMT.
3.Dmart today is in the same position as Walmart was in 1970s immediately after they got listed and had 136 stores in 1976. From 1976 till 1999 (23 years) Walmart grew at an avg. rate of 22-25% CAGR in sales and also stock price.India is 4 times bigger than US in population.
4. UK is the size of UP roughly in area. Population of UP is 3.7 times more than UK.Tesco has 3433 stores.
Dmart CEO on competition & disruption -
5.The moat for every retailer, not only us, is that there is a reasonably large, almost 50% of revenue where nobody can compare one retailer to the other on pricing. Like a steel glass, what I sell versus what my competitor sells versus what someone else sells - its rim is different, finishing is different, thickness is different, and hence its pricing is different, and hence you can adjust 2%-3% margin. . This is one area which Mr. Damani used to handle in the initial phase, and he kind of built this whole thing.That is a fun side of the business, because that is very difficult to decipher. And I am saying that is the moat for every retailer. And that is where you bring in the differentiation.
6.E-commerce turns out to be more expensive. But this is only in food / grocery. When you talk about cell phones, it is reverse, you talk about books, it is again reverse. And that is what you are seeing, money is like water, where arbitrage is, it flows there. That’s how you see a significant disruption in sub-sectors. Like in electronics, in mobile phone many things have happened. So, wherever that arbitrage tilts, the business will tilt towards that area. So, fortunately because we are in the grocery business we believe the arbitrage is better for brick-&-mortar.
But I am not saying online will not or may not disrupt us, it can disrupt us. But the relative disruption is the lowest in food and grocery (F&G),which is a global phenomenon, you see across the globe, F&G is least affected by online. So, that’s the only data point I will give you. And with F&G, it generally affects those people who have high gross margin, high overheads while we are low gross margin, low overheads.
I am from Bangalore , whenever I go out I see lots of grocery store/supermarket other than our valuepickr favorites BB, Reliance etc…I see this as an opportunity for Dmart to snatch more market share from their existing market & players and when I travel to tier2/3/4 cities in India , I see there is dearth of grocery supermarkets.So they have market share to grab from other small players and also huge opportunity size to grow.Even if they capture 20-25% market in coming 20-30 years it will be massive, and leave the rest of pie for all the competitor out.