Dmart is a very strong co and has been posting consistent growth in revenue and earnings. In addition to the stellar numbers , the key driver has been a improvement in the balance sheet which sometimes gets missed and doesnt get too much attention. Having said that, only hardcore dmart fans will say that its valuations are not high.
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If one sets aside Covid -19 disruption, FY21 normalised EPS would have been around 26 , so PE turns out to be 120, which is high, but market tends to price future runway & rate of growth, where it scores highly.
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Hi
Came across an IDBI Capital report on Dmart released today.
For FY22-46 they estimated CAGRs
Store growth 17%
Revenue & PAT 28%
They also said revenue growth is conservative.
They have said the exit multiple in FY46 will be 76x times earnings and 50x EV/EBIDTA.
Finally it is a BAAP and a 100 bagger in the making with stock compounding upwards of 20% annually.
Personally this is a little concerning to read such a report talking about BAAP and 100 baggers.
Rgds
p.s. not sharing the doc as I am not sure if its publicly available or not.
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What is the full form of BAAP?
Buy at any price - BAAP
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Thanks for NOT uploading the âresearchâ report. Exit multiple after 25 years is 76XâŚ
Let us get some perspective. Walmart started in 1962 and its shares are quoting at PE of 27 now.
No doubt, Dmart is a good company and is very good for value seeking shoppers (personal experience). But to me, this idea of BAAP is simply dangerous. Though it is very obvious, one has to remember always that the price you pay now determines the return in futureâŚWhen the frenzy subsides, even real âBAAPâ will find it hard to save the beta (investor)!. 
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If growth is 28% , then return on capital will also be near that figure of 28%. If ROC is 28% then itâs very much possible for multiples to reach 70+. Ofc whether growth over the next 20-30 years is going to high double digit is always going to be up for debate.
If company has impeccable business model, long runway for growth, and if market recognizes itâs potential giving it high PE, company will come with QIP time to time to complete runway faster. QIP to capture market and QIP to save business from drowning are two different type of QIPs. So growth may be faster than ROC.
Presently they have enough runway for growth in foreseeable future. For long time, it depends on growth of Indian GDP and world GDP. Nobody knows obviously.
For DMart to become a 100 bagger, its market cap should be USD3 plus Trillion considering no further equity dilution. Thats more than the combined market cap of FAANG until a year back. Even letâs say DMart achieves the feat of Walmart for 30 years it would be less than 10 bagger from the current price. india is also a socialist country unlike USA and hatred for corporations will increase as they grow in size.
Even if it becomes a 100 bagger in 30 years and among the top 10 international companies, itâs an annual return of 16.5% from the current price. I cannot understand how the current valuation justifies the impossible execution risk!
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Let us look at some scenarios based on 28% CAGR for Dmart sales.
| (Rs Cr) | Now | After 25 years | |||
|---|---|---|---|---|---|
| GDP growth rate | @8% | @10% | @12% | @15% | |
| India GDP | 1,34,40,000 | 9,20,43,507 | 14,56,18,448 | 22,84,80,866 | 44,24,30,723 |
| Dmart Sales | 25,000 | 1,19,72,621 | 1,19,72,621 | 1,19,72,621 | 1,19,72,621 |
| Dmart Sales/GDP | 0.2% | 13.0% | 8.2% | 5.2% | 2.7% |
If we compare with Walmart, its global revenue in 2020 was USD 524 billion and considering US GDP at 21 trillion, the ratio would be 2.5%.
Question to ponder on GDP growth vs Dmart sales growth - which is the likely scenario
and which ones lead to reductio ad absurdum.?
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Not going into the valuations. However if you are calculating the market cap in 2046 in dollars you will have to account for the currency. Last 13-14 years rupee has depreciated by about 5% per year against the dollar. If we extrapolate this for another 25 years then market cap in 2046 if it becomes a 100 bagger will be 750 billion dollars which in itself is huge but no where near 3 trillion. Having said that I am not a fan of these 25 year forecasts.
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Hi
An article on private labels in Reliance. Private labels could be a big differentiator in the future not just for retailers but the suppliers mainly.
Rgds
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I have been using Enzomatic for my front load washing machine which is a Reliance Brand in place of Ariel or Surf Excel. The quality is perfectly fine and cheaper. This will be a gradual shift. Given par quality of all three products i.e Surf ,Ariel and Enzo ,now the only distinguishing factor for me to buy amongst these 3 is price.
I think being a house brand reliance can easily keep it at a lower price then others and still corner decent margins.
All three products are manufactured on Contractual basis therefore there is not much of a quality issue.
I havent tried Snactac in place of Maggie. But will definitely give a try.
D mart may also be thinking of launching its home brand products.
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Interestingly this has been the trend globally. Similar to what Amazon is doing introducing products under amazon basics (including electronics) which is then given higher priority.
Even Flipkart for that matter has introduced a Flipkart basis, I recently got a wireless mouse from there.
I wouldnât count DMart too much on private label end. All the retailers try this without exception. But creating a successful fast moving product is way different game than retailing. I believe established FMCG players like HUL, Nestle, Marico, etc are masters in this area and this will only be DMartâs side game in the limited sense. Consider this:
During lockdown, DMart predominantly stocked well known products instead of their private label though they knew consumers were in the hoarding mode to take in anything available. DMart CEOâs justification being: In the times of fear and uncertainty, seeing a well known brand gives lot of assurance and confidence than the unfamiliar private labels. So they valiantly avoided the temptation to push private labels at those dire times.
Nowadays I see private labels are back. But DMart knows the limitations of private labels clearly. They continue to ensure well known brands so that consumers are not forced to buy private labels unlike other retail chains.
I respect DMart for it. This is all the more reason why I think DMart is mainly a retailer even for the long term than as a player in FMCG.
Disclosure: Invested
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Thanks for sharing this! Above has increased my respect for DMART both as a consumer and investor. Above clearly means that DMART team is way ahead than other retailers - Not because they pushed or not pushed their Private labels BUT because they not only have a solid, clear strategy but also the confidence to abide by it, even in most uncertain times!
Same I can see in way Trent operates - A Solid, clear strategy over Private labels/ecommerce etc. and even Naturesâ Basket from the Spencer Retail.
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Considering the fact that Dmart has a long journey ahead, it could very well try something regarding having their own private labels. Having a core belief and strategy does not mean that they will shy away from experimenting at all, every one does that. If some companies could burn cash just to stay in the game, Dmart which has shown excellent earnings growth till now could also push its labels, perhaps more stringently. I would say that some labels may get accepted considering the fact that Dmart has loyal customers who would try out some products. The comparison of what happened in lock down was unprecedented, at least as far as India is concerned, and it is a behavioral aspect and rightly so. Every business wants to diversify if they see growth and Dmart will be no exception.
In an ever changing world, particularly in the retail environment where differentiation is not a moat but a necessity. Just like ITC, Dmart could very well try new things and generate good returns with a process.
Disclosure - Have a position.
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Very basic question:
âWhat is the moat which D Mart has and which Reliance retail cannot acquire.â
or Why Reliance Retail cannot become a D Mart.
I understand that till this time Reliance has been trying to catch up D Mart model but still not sucessfull. What is the thing which is preventing them to replicate this
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Lowest Cost of products and lowest cost of distribution (due to better concentration in existing dominant regions.)
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