D’Mart IPO (Avenue Supermarts IPO) Review

One of the most anticipated IPO of 2017 is going to hit street today. The expectation is so high that grey market premium of Ace Investor Radhakishan Damani backed D mart IPO is around Rs.227 to Rs.228 per share and kostak (price of IPO Application) is around Rs.2,500 per application.

Being one of the most profitable food and grocery retail chains in India, every brokerage house suggests subscribing to D Mart IPO and almost every known investor advised to invest and keep D Mart share in long term portfolio.

Let’s see the highlights of the issue and what made D Mart IPO so sought-after one.

Features of D Mart IPO

Issue Opens On: Wednesday March 8th, 2017
Issue Closes On: Friday March 10th, 2017
Issue Type: 100% Book Building
Issue Price Band: Rs.295 to Rs.299 per share
Discount: No Discount to Retail Category Only
Face Value Per Share: Rs.10
Minimum Bid Lot: 50 Equity Shares and in multiples of 50 equity shares thereafter
Minimum Order Value: Rs.14,750 to Rs.14,950
Issue Size: Rs.1,800 crore
Number of Shares Offered: 4,43,72,882
Proposed Listing: Bombay Stock Exchange and National Stock Exchange
Lead Managers: Kotak Mahindra Capital Company Limited, Axis Capital Limited, Edelweiss Financial Services Limited, HDFC Bank Limited, ICICI Securities Limited, Inga Capital Private Limited, JM Financial Institutional Securities Limited, Motilal Oswal Investment Advisors Limited and SBI Capital Markets Limited
Registrar: Link Intime India Private Limited
Company Promoters: Radhakishan S. Damani, Gopikishan S. Damani, Shrikantadevi R. Damani, Kirandevi G. Damani , Bright Star Investments Private Limited, Royal Palm Private Beneficiary Trust, Mountain Glory Private Beneficiary Trust, Bottle Palm Private Beneficiary Trust, Gulmohar Private Beneficiary Trust and Karnikar Private Beneficiary Trust
Download D Mart IPO Prospectus HERE

Things to Know before subscribing to D Mart IPO

1. Radhkishan Damani, the value investor cum businessman is the promoter of Avenue Supermarts Limited. He is known to be ace stock picker and Guru of Waren Buffet of India aka Rakesh Jhunjhunwala. He is not offloading in this offer and his share will be 82% post IPO. Further, all reknown funds have applied for D Mart and anchor investors list boost the confidence of retail investors.

2. Company operates on ownership or long-lease model for its stores which helps company to minimize rent expense. However, it’s a capital intensive model but zero or lower rental costs helps Company to cultivate higher profit margins. D Mart strategy is to open stores near residential areas where people turnout ratio is high and to target customers belonging to middle class or upper middle class. The firm does not follow festival discount or season discount, it simply follows value-retailing which means daily low prices and consequently greater daily savings.

3. From one store in 2002, company has successfully established retail network of 117 stores, 21 distribution centers and 6 packaging centers as of 31^st December, 2016. Around 81% of D Mart profits come from Maharashtra and Gujarat States. As a part of its growing strategy, Company is planning to expand its current market position in Maharashtra and Gujarat along with other states namely Andhra Pradesh, Tamil Nadu, Telangana, Madhya Pradesh, Karnataka, Chhattisgarh, and northern India.

4. D Mart has registered revenue growth of 40% CAGR from year 2012-16 EBITDA Margin is rising at yoy CAGR of 52% and PAT is also growing at CAGR of 50% from year 2012- 2016. The Company has recorded net profit of Rs.318.76 crore and Rs.211.67 crore on the revenue of Rs.8,588.12 crore and Rs.6,439.43 crore for financial year 2016 and 2015 respectively.

For 9 months ended 31^st December, 2016 Company has clocked net profit of Rs.387.47 crore on revenue of Rs.8784 crore. Both operating profit margin and Net profit margin have increased to 8.76% and 4.41% from 7.73% and 3.71% in FY 2016.

5. Coming to Valuation. At an asking price of Rs.299, after annualizing D Mart nine months EPS, we get PE ratio of 32.5X and lower price band of Rs.295, PE ratio comes to 32X. Comparing it to the listed peers namely future retails, price-to-earnings ratio comes to 37.81X which is bit high in comparison to D Mart.

Secondly D Mart strong financial gives premium over other retailers. Its operating profit margins and net profit margin for the 9 months ended 31^st December, 2016 were 8.8% and 4.4%, versus Future Retail’s 3.2% and 2%, respectively. Further, Net Proceeds from IPO will be utilized towards debt repayment, after which its debt to equity ratio is likely to be trivial.

Keeping in mind the growth strategy, strong financials and comparatively reasonable valuations, D Mart IPO would be an offer to go for and keep it for longer term to reap tax-free gains.