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D-Mart IPO gets a stellar response; issue oversubscribed 104.44 times

QIBs, wealthy investors bid aggressively for shares in the profitable retail chain

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

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Image: Shutterstock

The Rs 1,870 crore Avenue Supermarts Ltd’s (operator of the D-Mart brand of stores) initial public offering received a roaring response from investors on the last day of its offering on Friday. Investors bid aggressively to get a slice of India’s most profitable chain of supermarkets.

Data from the BSE and the National Stock Exchange (NSE) showed that the issue was oversubscribed 104.44 times, on Friday evening. Bids were placed for 463.43 crore shares, against an issue size of 4.43 crore shares (excluding anchor investors portion), for a price band of Rs 295 to Rs 299.

The reserve portion for qualified institutional buyers (QIBs) was oversubscribed 144.61 times while that set aside for retail investors was oversubscribed 7.3 times.

Avenue Supermarts has been promoted by ace but low-profile investor Radhakishan Damani (62). The promoter family held 91.36 percent stake in the business, based on pre-IPO data. Avenue Supermarts revenues from operations stood at Rs 8,780 crore for the nine months of FY17 while its profits for the same period were Rs 387 crore.

D-Mart has 118 stores across nine states and one union territory. At a conference, Avenue Supermarts said it plans to deepen its D-Mart store network in western India and expand its presence in southern states of Andhra Pradesh, Telangana and Karnataka and in northern India.

The company says it has chosen these locations carefully as they account for 48 percent of retail spends in the country. In FY2016, the retailer got 62 percent of its sales from the state of Maharashtra, where it has 60 stores.

Out of the IPO proceeds, Avenue Supermarts plans to use Rs 1,080 crore for repayment/prepayment of loans and redemption of debentures.  A further Rs 367 crore will be used towards construction and purchase of fit-outs for new stores.
 
India’s $616 billion retail market is catered to mainly by small mom-and-pop stores and a small but growing presence of organised retailers. According to a presentation by D-Mart, organised retail or modern trade has a share of 8.9 percent or $55billion.

But even here modern trade has found it hard to make money primarily due to high rental rates. D-Mart, which owns the vast majority of its stores has consistently been profitable with an Rs 387 crore profit for the first nine months of FY17.

Still, the allotment, which is expected to be at the upper end of the offer price of Rs 295 to Rs 299 comes at a steep 40 times price earnings multiple.

Investors are banking on the fact that the company will be able to continue its 30 percent and 40 percent growth in top line and bottom line respectively as it has done over the last five years.


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