DMart IPO (Avenue Supermarts IPO) – Should you Invest?

Dmart IPO - Avenue Supermarts Ltd IPO- Should you invest or notDMart IPO (Avenue Supermarts IPO) – Should you Invest?


Mumbai based, DMart IPO (Avenue Supermarts IPO) would open for subscription on 8th March, 2017. DMart (Avenue Supermarts Ltd) is emerging national supermarket chain in India. Its revenues grown at 40% CAGR in last 5 years. It is one of the profitable FMCG company in the India. Investors has been waiting for the DMart IPO date for some time. What are the positive factors of investing in DMart IPO (Avenue Supermarts Ltd IPO)? What are the hidden factors in Avenue Supermarts IPO?  In this article, I would provide some interesting insights about IPO.

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About DMart (Avenue Supermarts Limited)


Company is an emerging national supermarket chain, with a focus on value-retailing. According to Technopak, in Fiscal 2016 Company was one of the largest and the most profitable F&G retailer in India. They  offer a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories. 

They opened its first store in Mumbai, Maharashtra in 2002. As of September 15, 2016, they had 112 stores with Retail Business Area of 3.40 million sq.ft, located across 41 cities in Maharashtra, Gujarat, Telangana, Karnataka, Andhra Pradesh, Madhya Pradesh, Chhattisgarh and NCR. They plan to deepen its store network in southern and western India and gradually expand its network in other parts of India pursuant to its cluster-focused expansion strategy.

Issue details of DMart IPO (Avenue Supermarts IPO)


  • IPO opens: 8-March-2017
  • IPO closes: 10-March-2017
  • Face Value: Rs 10 per share
  • Dmart IPO price band: Rs 295 to Rs 299
  • Issue size: Rs 1,800 Crores
  • Market lot: 50 shares
  • Minimum investment: Rs 14,950
  • Leading Managers: Kotak Mahindra Capital, Axis Capital, Edelwelss Financial Services, HDFC Bank and ICICI Securities
  • Listing: BSE / NSE
  • Download DMart / Avenue Supermarts IPO Prospectus at this link.

Objects of the DMart IPO issue


  • Repayment or prepayment of a portion of loans and redemption or earlier redemption of NCDs availed by the Company.
  • Construction and purchase of fit outs for new stores.
  • General corporate purposes.

Company Financials (reinstated-consolidated) – Avenue Supermart IPO


  • The company generated revenue of Rs 2,222.4 Crores for the year ended Mar-12 and Rs 8,606.1 Crores for the year ended Mar-16.
  • The company posted a profit of Rs 60.41 Crores for the year ended Mar-12 and profit of Rs 321.2 Crores for the year ended Mar-16.
  • Its consolidated restated basic EPS for FY ending Mar-16 is Rs 5.72 and last 3 years average EPS Rs 4.64.

Dmart IPO - Restated Consolidated Financials

Company Financials (reinstated-standalone) – Avenue Supermarts (Dmart) IPO


  • The company generated revenue of Rs 2,218.1 Crores for the year ended Mar-12 and Rs 8,599.63 Crores for the year ended Mar-16.
  • The company posted a profit of Rs 59.4 Crores for the year ended Mar-12 and profit of Rs 318.92 Crores for the year ended Mar-16.
  • Its standalone restated basic EPS for FY ending Mar-16 is Rs 5.68 and last 3 years average EPS Rs 4.61.

Dmart IPO - Restated Standalone Financials

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Strenghts of DMart


  • Value retailing to a well defined target consumer base.
  • Steady footprint expansion using a distinct store acquisition strategy and ownership model.
  • Deep knowledge and understanding of optimal product assortment and strong supplier network enabling procurement at predicable and competitive pricing, leading to an overall efficient cycle.
  • High operating efficiency and lean cost structures through stringent inventory management using IT systems.
  • Strong promoter background and an experienced and entrepreneurial management team with a proven track record and a high degree of employee ownership.
  • Strong track record of growth and profitability.

Reasons to invest in DMart / Avenue Supermarts IPO


  • Revenue grew at 40% CAGR in last 5 years which indicates strong growth in revenues.
  • Good profits of 3.7% for the year ended Mar-2016. We cannot expect high profits in FMCG companies.
  • Strong brand that makes this IPO unique in the industry.

Reasons not to invest in a DMart IPO (Avenue Supermarts IPO)


  • If they are unable to continue to offer daily low prices pursuant to its EDLC/EDLP pricing strategy, they risk losing its distinct advantage and a substantial portion of its customers which will adversely affect its business, financial condition and results of operations. Further, in case of shortages, its suppliers may increase prices of products beyond its control due to which they may lose its competitive advantage
  • If they are unable to purchase real estate or enter into long-term leasehold arrangements or enter into rental agreements at locations suitable for new stores, distribution centres or packing centres for its expansion at terms commercially beneficial to it, it may adversely affect its expansion and growth plans.
  • Company inability to maintain an optimal level of inventory in its stores may impact its operations adversely.
  • Its ability to attract customers is dependent on the location of its stores and any adverse development impairing the success and viability of its stores could adversely affect its business, financial condition and results of operations.
  • If they are unable to effectively manage its expanded operations or pursue its growth strategy, its new stores may not achieve its expected level of profitability which may adversely affect its business prospects, financial condition and results of operations.
  • Company inability to promptly identify and respond to changing customer preferences or evolving trends may decrease the demand for its products among its customers, which may adversely affect its business.
  • They may not be successful in maintaining and enhancing awareness of its brands. Any fall in its brand's reputation may adversely affect its business, results of operations and prospects.
  • They generated a majority of its sales from its stores in Maharashtra and Gujarat and any adverse developments affecting its operations in these two states could have an adverse impact on its revenue and results of operations.
  • Company, Subsidiaries, Promoters, Group Companies and Directors are involved in certain legal proceedings and potential litigations. Any adverse decision in such proceedings may render company liable to liabilities/penalties and may adversely affect its business and results of operations.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 13 onwards.

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Recommendation / Investment strategy – DMart IPO (Avenue Supermarts IPO)


  • On the upper price band of Rs 299 and on FY16 standalone EPS of Rs 5.68, P/E ratio works out to 56x. Similarly, on last 3 years standlone EPS of Rs 4.61, P/E Ratio works out to 69x. Means company is asking the upper band of issue price of Rs 299 for a P/E ratio between 56x to 69x.  Its peers Future Retail is trading at P/E Ratio of 240 and Trent Limited trading at P/E ratio of 123.83. Hence DMart IPO (Avenue Supermarts IPO) higher price band of Rs 299 is reasonably priced. 
  • Company revenues grew at 40% CAGR in last 5 years. It generated profits of 3.7% in FY16. Dmart IPO price is reasonably priced. Dmart Brand is buzzing now in the stock market. High risk investors can invest in this IPO with 2-3 years tenure. If you can get good listing gains, you can do party.

Disclaimer: I am interested in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to invest in this IPO. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

DMart IPO (Avenue Supermarts IPO) – Should you invest or not

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