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Indian retail supermarket chain DMart on Saturday reported an impressive set of numbers for the full year to March 2017. The numbers, its first ever financial results since going public point to both the robustness and resilience of its Everyday Low Price Model. They also mean that the elevated valuations at which the stock is trading are likely stay in place.
DMart, whose parent is Avenue Supermarts – promoted by ace but low-profile investor Radhakishan Damani – reported full year net profit growth of 51.6 percent at Rs 483 crore, compared to Rs 317 crore the previous fiscal. Revenues jumped 38.6 percent for the fiscal year to Rs 11,912 crore against Rs 8,592 crore for the previous year.
The DMart stock, which had an extremely impressive listing, ending its day one trading debut at the BSE at Rs 604.4 or 102 percent above its issue price of Rs 299. A day prior to the earnings data, the stock closed up 4.6 percent at Rs 808 at the BSE.DMart, which is trading at a price earnings ratio of 104 times is unlikely to see a significant decline in price any time soon. First, growth in revenue and profit have been above market expectations. Second, the free float available for investors is only 10 percent. This means there will always be a scarcity premium to the stock. Third, the company has a return on networth (27.7 percent) and return on capital employed (28.6 percent) far in excess of other retailers in India.
At a press conference in March during the launch of its IPO, 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. DMart, which had commenced operations in 2002 out of a store in Powai, Mumbai now has 131 stores. The company at the same press conference had spoken about the large store expansion opportunity that lay ahead stating that any city of over 1 million population was a fit candidate for expansion.
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 $55 billion. But even here modern trade has found it hard to make money primarily due to high rental rates. DMart owns a majority of its stores and has taken a conscious decision not open stores in malls.