DMart: Avenue Supermarts IPO opens soon; What should you do
Analysts at ShareKhan said, At the price band of Rs295-299 per share, the issue is priced at 52.6x and 51.9x its FY2016 EPS, respectively - a discount to some of its peers despite much better profitability and return ratios. Its track record of industry leading performance and a reputed pedigree make it a quality investment option in the retail space.
D-Mart's promoter Avenue Supermarts Limited (ASL) prepares to make its debut on Indian stock exchanges through its initial public offering (IPO). The company's is set to commence its IPO issue on March 08, 2017 and will be available for three-days period closing on March 10, 2017.
The IPO:
Avenue Supermarts will offer between 6.25 – 6.34 crore equity shares to raise up to Rs 1,870 crore.
Price band for the issue has been fixed at a lower band of Rs 295 per share and an upper band of Rs 299 per share.
50% of equity shares will be allotted to Qualified Institutional Buyers (QIB), 15% to non-institutional investors (NII) and remaining 35% to Retail Individual Investors (RII).
A major portion of the net proceedings will be utilised for repayment of loan and redemption of non-convertible debentures (NCD), while remaining will be used for construction and purchase of fit-outs for new stores, the company said.
Book running lead managers (BLRM) for this IPO are Kotak Mahindra Capital, Edelweiss Financial, HDFC Bank, ICICI Securities, Inga Capital, JM Financial, Motilal Oswal Investment Advisors and SBI Capital Markets.
Should you subscribe Avenue Supermart IPO?
Analysts at ShareKhan said, “At the price band of Rs295-299 per share, the issue is priced at 52.6x and 51.9x its FY2016 EPS, respectively – a discount to some of its peers despite much better profitability and return ratios. Its track record of industry leading performance and a reputed pedigree make it a quality investment option in the retail space.”
Nirvi Ashar and Dhavan Shah analysts of KRChoksey said, “Avenue Super marts are considered as one of the most prominent player in the F&G market with a presence among 41 cities. The company has total debt of Rs.1240 crore at the end of 9MFY17, which is expected to reduce by Rs. 1,080 crore over FY18-20. This in turn could result company to stand at almost debt free level, which could improve return ratios further going ahead.”
In terms of valuation the duo added, “On the upper price band of Rs. 299, the stock is valued at 32.5x on FY17 basis (annualized 9MFY17 EPS of Rs. 6.90). We believe that stock is valued at reasonable valuations given the listed peers such as Future retail and Trent trading at ~37x FY17 & ~50x FY17 respectively."
Further, analysts of KRChoksey commented, "An increase in the penetration among different Tier 2 & Tier 3 cities in the years to come could assist them to capture potential market share and provides strong financial performance visibility going ahead. For the same reason, we have a SUBSCRIBE rating on the issue."
An analyst from Axis Capital said, "As a part of their strategy, the company propose to utilise Rs.187.95 crores out of the Net Proceeds towards purchase of fit outs for the new stores with an aggregate built-up area of 2,100,000 sq. ft. and utilise Rs.178.65 crores to undertake construction of new stores with an aggregate built-up area of 900,000 sq. ft. to be undertaken in Fiscals 2018, 2019 and 2020."
Key Highlights to notice in Avenue Supermarts:
In India, Avenue Supermarts competes with retail players like Future Group, Bharti Group, Reliance, Aditya Birla Retail, Trent/Tata Group, CESE Limited and K Raheja Corp.
According to Technopak, in Fiscal 2016, ASL has emerged among top retailers, as their total store count has grown from 75 in Fiscal 2014 to 110 in Fiscal 2016. ASL has expanded their store network from 1 store in 2002 to 118 stores as of January 31, 2017.
Currently, ASL is at fourth position in terms of number of stores after Reliance (597 total stores), Future Group (500 total stores), Aditya Birla Retail (487 total stores) and Bharti Group (188 total stores).
Last fiscal (FY16), ASL alone managed to register a whopping revenue of Rs 8,650 crore, compared to its peers where Reliance had total revenue of Rs 6,650 crore and Future Group along with Bharti Group had total revenue of Rs 11,000 crore.
ASL's profitability is growing at a CAGR (compounded annual growth rate) of 51.56% from Rs.60.41 crore in Fiscal 2012 to Rs.318.76 crore in Fiscal 2016. For nine month ended period of current fiscal (9MFY17), profit after tax (PAT) of the company stood at Rs.387.47 crore.
With its strong promoter background, high operating officiency, strong track record of growth and profitability, ASL's outcome ahead is robust.
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