A share can still be over valued even after 20% correction and a share can still be cheap even after sharp up move.
In case of Dmart, market had priced in 40% CAGR for next few year and the same is not happening. Now valuations will be adjusted for lower growth. So expecting more corrections
@Gurmeet : I am glad that you at last understand it was sarcastic .
Anyways ā¦ Godrej Consumer, Britannia , Marico etc can be killed any day by introducing private label products of DMART(It will not happen I know but there is slightest possibility as DMART have the footfalls and gaining market share ) but till today there is no such Business Model invented which can kill discount retailer like DMART. Infact online retailers also recognized the potentiality of brick and mortar retailers and asking for help to offline retailers for expanding business ā¦So think that way to understand why despite of so much earning disappointment market is willing to give 100 PE to DMART and believe this situation will be sorted out in near future . There could be more counter arguments which anyways canāt be give proper answers in forum as Truth canāt be spoken ,it need to feel from the inside which come from the experience you have in market ā¦
I did not, as I cannot recall having read such sarcasm or I simply failed to understand your comments.
But even Dmart is not invincible, as witnessed after the results. No one questions the business model, management, the point of discussion was and will always be the exorbitant price.
Is It? Then you need to study more about retailersā¦Refer this link at below . It is just for example .Lot of books written on How traditional brand killed by Private Labels ā¦Go through thoseā¦
https://seekingalpha.com/article/3985909-retail-consolidation-killing-traditional-consumer-brands
See this, in case you did not already. The writer is a member of this forum.
Guys make sure any reply or post you make adds value to the thread and we refrain from mindless arguments and one- upmanship.
We will be deleting all posts which we feel dont add any value or appear offensive.
Well at least we have a consensus that there is no doubt about the quality of the business or long runway about it. Concern is always about the valuation of it. Well I believe market will give it a high PE as long as it thinks this is a secular business. Secularity of this business/sector will only be questionable if there is any significant event that can disrupt itās earning potential. At least I can not see any such event but if anyone can foresee let us discuss that.
Also the recent margin contraction is not a big issue for me as long as the growth is intact. Lot of retailer apply the same strategy for killing the outright competition. Letās take an example of Amazon in their begining year when they offer a lot of discount to the customer to gain the market share and go on to make a 100 bagger.
Agree with your view point. I always wonder about the customer loyalty towards these super markets in the era of hefty discounts being offered by the online retailers. Even online retailers are having loyalty programs nowadays (eg Amazon prime membership ,even Flipkart is thinking of adopting the same model) . So for physical stores , only resort left to attract new retailers as well as to keep the customers loyal is to offer better prices and promotional schemes. Last 2 quarters result validate this view. Other resort is to open maximum stores as in all of the markets, there would still many customers who are still not comfortable to buy online. But how long the physical model would sustain that is a question mark. Every one has growing up kids, who become the pivot point of the family for shift in purchase behaviour from physical stores towards online stores. Feel may of the so-called big investors are just trying to enjoy the price momentum in this case (I canāt believe that they are blind to online trend)
D-Martās biggest edge over other retailers is its strategy of offering merchandise to consumers at a lower MRP.
By Ajita Shashidhar Tuesday, January 15, 2019
Value retailer, D-Martās profitable growth story was something every modern retailer envied. When almost every retailer was laden with debts, the Radhakrishna Damani-owned retail company was surging ahead profitably.
The D-Mart growth story isnāt as enviable any longer. The company recently reported its second consecutive quarter of subdued EBITDA and PAT margin growth of 7.5 per cent and 2.1 per cent, respectively despite a revenue growth of 33.1 per cent in the third quarter of FY19.
Read More: Will D-Martās exponential growth story continue? Unlikely, say analysts
D-Martās biggest edge over other retailers is its strategy of offering merchandise to consumers at a lower MRP. The retailer has continued to do so even at the expense of its margin growth. The retailer in its post results commentary said that its operating costs went up due to preloading of certain expenses around capability building across infrastructure and people. It also said that it overspent during the festival season by keeping the store open for a longer duration which, in return, hit its margins.
The value retailer is certainly under pressure from e-commerce retailers as well as the likes of Reliance Retail, and is forced to work at the cost of its margins in order to get more shoppers to shop at its stores. The likes of Reliance and Amazon have deep pockets and are leaving no stone unturned to penetrate into D-Martās stronghold, which is mid-market India.
Also, every store reaches a saturation point after being in operation for 5-8 years, and most of the D-Mart stores are old. The next level of growth and profits always comes from newer stores, and for D-Mart to grow at a rate of 30-40 per cent year-on-year (which has been its growth rate all these years), it will need to open at least 25-30 stores every year, which is a tall task. This leads to margin compression. The retailer has added just about nine stores in the FY19 so far.
The analyst community expects a stock price correction. āWe expect stock to correct over near term given a miss in profits. For a flattish year-on-year profits in the December quarter, the stock is quite expensive at 74x P/E FY20 and 43x EV/EBITDA FY20,ā says Abneesh Roy, Senior Vice President, Edelweiss Securities.
@jamit05 Please justify by giving some info/analysis/Backup/examples why the numbers donāt justify. May be not based on Quarterly results but why dont we look how the company reached this farā¦
If we just see the past numbers, profits grown from 6 crs to 901 crs (150 times yes thatās true) in less than 10 years, sales around 30 times and they built a brand D-MART, in a very difficult retail industry.
They are very few businesses in this world especially in Indian Retail who has grown like thisā¦very fewā¦ mostly importantly profitably.
I am still waiting(almost 20 years) for Future group aka Biyani companies, which are in retail business, one of the first entrants in retailā¦make sustainable / decent profit for all their businesses except diversification and spin offs and entering new businesses and coming with new story every time.
There were āNā number of retail businesses in India with well know investors backing , started with a bang, but still disappeared in no time.
Here is a company making inroads into one of the toughest Indian industry- retail where profit making is very very difficult made a brand for themselves and slowly but surely expanding profitably.
If we dont get comfort at valuations we have to waitā¦waitā¦waitā¦waitā¦patiently till it reaches our comfort levels and investā¦till that timeā¦just admire/track the business how they are building/growingā¦and admire/learn from the brave hearts who are invested.
By the way if stock price crashes by 50% one only looses if u sell, if u keep invested if u r a long term investor(5+ā¦infact 10+years)ā¦these things wont matterā¦will teach all of us a lot about investing why is it toughā¦infact damn tough.
PS: Sold PAGE and ASTRAL just because they are high PE and only saw the business growing and stock going higher and higher, unable to reenter and still waiting from more than 3 years.
Before posting, everyone is requested to think whether the post adds any value. I have seen many posts which adds little value. Any future violation may lead to strict actions.
Reliance Retail, one of the competitors for our company came up with following nos
Quarterly sales : 35000 cr
EBITDA : 1700 cr
Store count : 10k
Cumulative Store Area : 20 million+ sqft.
It has more stores than all other organized retail put together.
12 month revenue higher than all other organized retail together.
I know that it has bigger pockets & are here to stay for longer run.
Can we compare nos & come to an understanding if they are also facing similar pressure, which forced our company to post a subdues quarterly result?
Moderators : please feel free to delete if it doesnāt add value to this thread. I am aware that the details are for a separate entity, but being competitor, wish to have opinion of seasoned investors
By Nos
Reliance Retail is 8X Dmart in Revenues and in EBITA is near 4.5 X ( with current run rate ) . But Reliance game is different . It is not a pure low discount player .
It will try to get Jio to hook consumers - give them Jio prime membership - which will then offer retail media , data , consumer goods , petrol etc ā¦ The plan they have is to go high tech way - when 5G gets launched with VR - they will help you shop @ home just like the way you do in shops and with AI they will get into customised segmented offers on retail products . At least that this what they say in communication.
Dmart is traditional retailer l with focus on being low cost - less differentiated - making consumer shop like good old traditional mandis - with lot of rush and consumers hunting for goods and offers . This works perfectly fine for groceries and some consumer discretionaries especially for consumers who have time for shopping . But underinvestment in technologies and creating consumer experiences might hurt DMART in future .
Why should Dmart invest in technology aggressively if the sections they cater to will always be different? More and more educated and professional people will want to sit at the comfort of their homes and shop but what about other groups of regular people who not only get enticed by the discounts and also have time? And I donāt think they expect any consumer experience other than a good discount. If the people who use technology and brick and mortar will exist in the future, I think both businesses will thrive.
What do you say?
@Chaitanya , For Pune or bangalore like cities where Tech savvy person lives ,DMART can think bit differently like about storing of customer profiling data and take decission about storing the inventory accordingly(implementing analytics) . That will help to grow the DMART ready business in better way for future. I also agree with @kb_snn on this.
To give low price you need to have low cost .
In Retail one of biggest cost is real estate - In physical retail to get consistently great real estate location and sustain the cost of location say 5/10 years down line when lease come for renewal is tough . That is what killed many retailers in 2007 ā¦ who expanded fast through WC funding by their suppliers .
Technology is location agnostic hence makes scaling is much easier ā¦ So to be low cost tomorrow you need to invest in technologies .
Lets understand from history . Why Walmart was able to beat Sears ā¦ It is because of huge investment in Supply chain technologies that helped it to be more fresher , relevant for customers besides low cost .
In case of DMart they are not trying to study / work on basic queuing theory or waiting line problem . That is highly inconvenient for customers plus increases service time blocks space as customers are just hanging around till they have been billed . These all add to cost in long term
Now how a traditional retailer offers low price In India across trades ā¦
Real estate owned by Retailers - then he works on marginal cost based pricing - but Scaling beyond few location is difficult
Smart WC funding ( credit terms and annual discounts ) by supplier - This is great strategy that works on same principle as NBFC - But key is you need to grow by > 20% + to ensure that chain does not break . Also in mean time you hope some suppliers will be bankrupted and you donāt have to pay them the principal amount.
Mix of spurious goods with brand goods :
Conduit to convert black money to white :
We need to understand DMART as āethicalā company can use only strategy no 2 to offer low price . That is what Future , Subiksha etc did in 2003- 2007 era ā¦ but when growth slowed down in post 2008 , these retailers had tough time ā¦ I would like to see DMART survive one such downturn to understand their real strategy of offering low price ā¦ without technological edge ā¦
Hi @Gurmeet , Please donāt clutter the thread by posting unnecessary external link.You can add your own view ,any negatives (if any) like @kb_snn did. It will enrich the quality of Dmart thread and thought process of other participants.
@adminph2 , @manish962 is the best person to take decision about this. Thanks to admin for bring back the quality of the thread and deleteting the unnecessary posts. Hope this continue in future also which will bring back many old valuepickrs to post their valuable thoughts in the thread ā¦
With my limited knowledge on Dmart, as I am not actively tracking it, is that it opened its first store in Powai in May 2002. So it has already seen few downturns including the global recession. I think low cost is not the only strategy. Low cost is the outcome. How you achieve that low cost is what differentiates the come and go companies and century leaders. I remember reading on Mr Damani that how he used to visit the traders in disguise (parking his car far away and dressed like a common man like he usually always is) and tried to understand the pains of traders first. How he befriended them, made them feel like partners and ensured the best QUALITY first. How he studied on what items to buy and how much to buy etc. etc. These small things go a long way and I am sure Mr Damani is here for a real long run of profitable growth and comparing Dmart to other retailers that collapsed in 2009 downturn may not be right (just my thought).
So, business model is right to me as the way of achieving that model, which really matters to me, is right. Valuation is something I am not sure, retail policy of country, e-commerce threat or boon, mix of offline online, technological disruptionsā¦these are factors I am not sure. Good for Mr Damani that so far his methodology has been spot on and I trust him much more than myself 
I wish I buy Dmart share someday and it flourishes in this disruptive world!
Disc: Had applied for few lots in IPO, did not get a single share. Market did not give opportunity to buy later so far. Have other ideas suiting my investing style at the moment hence not invested still, but huge confidence and respect for Mr Damani is what prevents me from quitting on it.
My 2 centsā¦
1.Unlike Future etc in pre 2007-08 , dmart does not grow by taking huge debts (which was the actual reason of fall of those retailers in 2008) ,its OCF is much stronger to keep the store expansion and will help the day to day operation intact. They were no where to close of ROIC(incremental) of DMART which is 40% .
2.For WC funding, the short term debts which DMART require for operation is minimal , Interest coverage ratio at least tells that .
3.DMART will not allow to default any suppliers . Payable numbers indicates that. Wlamart squeezed suppliers ,Dmart is just opposite.
Also below link helps to understand why low cost producer thrives during recession.
Right points for discussion ā¦
Future group and subhiksha started in 1990s ā¦ The scale was small and both came with lot of ground common sense and to great extent they had very innovative ideas . No one in stock market knew about them in first downturn ie 2001 - 2003 , expect their customers .
Then suddenly financial market discovered them in 2003 - 2007 boom . Lot of books and articles were written on them and their ground up ā¦ People started copying them and slowly differentiation reduced .
++ These retailers expanded fast and they had rely on employees for implementing their ideas . Things started going wrong but still it was hidden because suppliers were ready to finance their growth .
Then suddenly 2008 happened - Growth slowed and many suppliers wanted money back , credit terms . To add to their woes - rentals increased , their expensive hiring started hurting them .
Retailing is very tough business - ideas are easy to copy - and customers are loyal only to price ā¦
Why has DMART profit reduced in this quarter ā¦ has NBFC -MSME crisis any connect with it ā¦ I donāt know but when COC increases - Retailers need to work more harder to maintain profitability
