Shares of Avenue Supermarts, the parent company of supermarket chain D-Mart, had a spectacular debut on the stock market, with the stock opening at a premium of more than 100 per cent and eventually closing up 114 per cent on the listing day.
The company received a tremendous response for its initial public offering (IPO), through which it raised Rs 1,870 crore. The IPO was subscribed more than 100 times.
Compared with the issue price of Rs 299 per share, the stock was listed at Rs 604.40 on the BSE on Tuesday, up by 102.14 per cent. The stock gained further, finally closing at Rs 640.75, an increase of 114.30 per cent.
Many brokerages had recommended investors “subscribe” to the issue, citing attractive valuations. The IPO was launched in the Rs 295-299 price band.
In contrast, other retailers were under pressure on Tuesday. Future Retail closed 1.1 per cent lower and V-Mart retail fell close to 10 per cent.
D-Mart is promoted by ace investor Radhakishan Damani. The retailer opened its first store in 2002 and has since expanded to 118 outlets in west, central and north India. It has adopted a cluster model for growth and owns most of its stores rather than leasing them.
D-Mart is among the most profitable food and grocery retailers in the country. For the year ended March 2016, Avenue Supermarts reported a net profit of Rs 300 crore on a revenue of Rs 8,600 crore. In contrast, Kishore Biyani's Future Retail reported a net profit of only Rs 15 crore on sales of Rs 6,845 crore.
“The company has a strong supply chain management system which enables it to operate efficiently and hence the inventory turnover ratio is among the highest in the industry (at 14 times in FY16). Consequently, overall financial performance remained strong with revenue/profit after tax registering a stellar compounded annual growth of 40/52 per cent over FY12-16,” said broking firm Geojit Financial Services.
However, post the sharp gains on the listing day, some analysts say the valuations now appear expensive.
“Currently, D-Mart is trading at 68.8 times PE multiple and has already witnessed more than 100 per cent upside on the day of listing. We believe that all the positive aspects of the company are already factored in the current stock price. Going forward, we don't expect multiple re-rating due to stretched valuations,” said Amarjeet Maurya, senior equity research analyst, Angel Broking.
