Avenue Supermart: a compounding machine?

Was there any explanation from mgmt why the OPM was down this quarter compared to last quarter. Also the PAT is down YoY and QoQ.

I’ve never been able under so high valuation for this entity. May be lack of knowledge from my side. This kind of valuation has already taken in 3-5yrs growth from now!

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The taxation in last years quarter was lower as compared to their average taxation rate. Since that got moderated now, we got a lower PAT number. Cumulatively, margin contraction is only a negative. Profits will grow once the recent stores that opened will mature in next 2 years. But improvement in their product mix will be even more important for profit growth.


The above demand of GST, interest and penalty on the Company is going to have any impact on share price in short term?

Q3 FY2023-24 update.


Dmart Freehold land analysis

Look at the land value almost 50% of the fixed assets consist of land, approx 13% of revenue size consists in land only.

While going through its balance sheet and notes to accounts, the company has valued its freehold land (simply means land not mortgage anywhere) on COST i.e, the purchase cost of the land, which means the market value of these immovable properties could be much higher (as some of the properties were purchased at the time of starting dmart and in some most prominent places) You all must have seen the locationsb at which dmart purchases properties.

Company has already reached at 36k crore revenue till dec23 while the last year total revenue was 42k crore.

Company is holding approx 1500 cr cash at 31 March 23, making it a more aggressive buyer of properties.

I am sure in few years the value of these properties would be bigger than the revenues if dmart continues to purchase them at the same pace.

What am I missing ?



How do retail investors get benefited by Dmart owning land and properties, unless they are liquidated at a higher price, when the company does not see any need for the assets, as the TAM shrank overtime, say in 20 years, as Dmart has matured.

How would any company which holds valuable assets benefits a retail investor unless those valuable assets are disposed and the proceeds are shared with the retail investors? These assets may attract another company, which gets some kind of a controlling interest and liquidates the assets, which benefit them but not retail, I don’t know if this can happen or not, I am saying that how does retail get benefited from Dmart’s increasing real estate assets?

If you can provide an answer w.r.t retail, that would help.

I am not from finance background, so there could be a lot of gaps in my understanding, and as you are a CA, you can provide a picture.

Have a position in Dmart, I consider it to be a very long story.


i think land bank is for expantion and not sale. they are coming with big formate with huge parking space…

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Of course, they are not present in all the states, so the organized TAM is still very much there, and the management is fine, they have their plans, but my point is about, how do retail investors get benefited from a company owning valuable assets?

I don’t remember reading about a business being sold off, assets liquidated and proceeds distributed to investors, so the question.

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As the land value gets appreciated over time and as they are shown at historical costs, the books do not account for the actual value.

Simply taking an example of price to book value.

Currently PB is 14.40 (when land is shown at cost only)

And if the market value of properties is considered, then book value of assets will increase and PB of the company will decrease, which means company might be at cheap valuations from the figures shown currently.

It might be the case that it is already running at high PB 14.40 and already discounted the scenario.

Impact on retail: if anything is available at cheat valuations will help retail or any investor in the long run through capital appreciation.

The above explanation was focused on the valuation not on the fact that how many properties Dmart owns and i don’t consider dmart selling them or keeping them. It is just a simple valuation matric.

There could be other explanations considering other factors.

Does it make sense to anyone or i am being fullish here ? Feel free to point out mistakes (if any).


Also, ASL is adding incremental properties through Internal accruals.

Occasionally there are companies holding significant empty plots which are marked in book at historical prices. As such they are not reflected in its profits or book value but the company can always sell or develop these land banks boosting their future earnings. In such cases it is useful to consider market value of the land while determining the valuations of stock.

Dmart’s case is different. Its land holdings are being fully utilized by building stores over it which saves rent expenditure. This reflects in better profit margins for the company. Hence its properties are already being accounted into its earnings and there is no need to separately deduct market value of its land bank from the market cap.


They are saving rent expenditure but how the value of land is accounted in the profit/loss?

You may visualize the revenue as sum of revenue from its grocery business plus the rental income from its properties. Just that Avenue Supermart is leasing the property to itself. So rental yield of its properties is already accounted in the profit/loss.

You could have said, apparent rental income is accounted in share price, there’s no way it could be accounted in profit and loss. Without any real transaction how can you say that it is being accounted in books.

This argument might make sense that share price has discounted it, books of accounts don’t show hypothetical pictures, and there’s no rule written and unwritten which allows a company to lease assets to itself unless property is held by trust or subsidiary

There is no compect of notional revenue and what you’re saying would have been true, companies might own hundreds of properties and lease it to self and inflat it’s revenues like crazy.

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I said to visualize it as such, not that there is a real transaction happening.
The intent is to distinguish from the special situations where land bank is empty and thus not reflected in PE or PB.

  1. Land hold is just another capex, how they utilise this efficiently to get returns is what matters, not appreciation of land value. Hence importance of ROCE.
  2. Value of land is unlocked only when they are sold, that means they are shutting down those retail locations! or when company is being liquidated. So for this kind of industry valuation wont improve due to land holdings from investors perspective.
  3. For retail industry land helps due to the following
    a. One time cost, variable cost go down, no rentals or rental escalations (was major reason for Big
    Bazar to shut shop).
    b. Benefit of depreciation
    c. Protection against market downturn as they can liquidate assets and raise money
  4. Land holding however improves valuation for real estate companies, only if they are able get returns regularly by developing and selling.

Current value of Land holdings as well as building is not relevant to the valuation of a company, neither useful to retail invetsor @ChaitanyaC .
I will give a glaring example of LIC. They show land value of 200 crore and building value of 3400 crore in balance sheet. But you know just a one building of Yogakshema at Nariman point near Mantralaya may cross 25,000 crore. Recently Air India building was sold , I think to Tatas which was valued at 14,000 crore and which is from same area and very small compared to LIC building. And this is just one building. Such thousands of buildings and land , LIC has all over India at very prominenet places in the heart of all Metros and Cities. But LIC may be mentioning then at Rs. 1 and such humongous value is locked, not useful to retail as well as in the running of businesses. And LIC owns most of its offices, and not rented like other insurance companies.


For LIC, Air India land is a non-core asset.
For DMART, its a core asset & their business model is built around owning the land. Adding the land value again makes no sense.