Shopping at Dmart is expensive now

Dmart, a retail supermarket promoted by Avenue Supermarts got listed on Tuesday on the bourses with jaw dropping returns of almost 110 per cent. Avenue Supermarts promoted by ace investor Radhakishan Damani, raised Rs. 1870 crore through fresh issue of equity shares of Rs. 10 each, in price band of Rs.295 to Rs. 299 per share. The IPO was closed on March 10, 2017 and opened on Tuesday. In merely 11 days, it augmented Radhakishan Damani’s net worth by around Rs 23,862 crore.

Avenue Supermarts runs 118 food and grocery stores, under ‘DMart’ brand, covering 3.6 million sq.ft. retail space, mainly across western India, with ~65.6 per cent revenue coming from Maharashtra followed by 18.8 per cent from Gujarat in FY16. With USP of value-retailing, most of its stores are owned, unlike organised competition operating on leased premises, giving the company savings of nearly 7-8% of sales as lease rentals, a key edge over peers, mainly Reliance and Future Retail, in the listed space. Furthermore, Avenue has one of the best inventory management (holding just 26 sale days’ inventory as against 80-100 days for Future Retail).

However, after whooping return of more than 110 per cent, Avenue Supermarts on its listing day is trading at premium valuation of 110.1x P/E of FY16 EPS, whereas its peers Future Retail Ltd. is trading at 76.2x P/E of FY16 EPS.

Considering expensive valuation and yelling return in just eleven days gives comfort to book profit in Avenue Supermarts.