Published on 6/03/2017 11:46:39 AM | Source: Religare Securities Ltd
IPO Product Note Avenue Supermarts Ltd - Religare Sec
About the Company
Owned by one of India’s ace investor ‘Radhakishan Damani’, Avenue Supermarts Limited owns and operates hypermarkets and supermarkets retail chain ‘D-Mart’. The company is amongst the largest and the most profitable food and grocery (F&G) retailer in India. The company offers a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories.
The company operates and manages 118 stores (as of Jan 31, 2017) located across 45 cities in India with an approach to retail quality goods at competitive prices. The majority of products stocked by the company are everyday products forming part of basic rather than discretionary spending. The company also operates 22 distribution centers and 6 packing centers in Maharashtra, Gujarat, Telangana and Karnataka, which form the backbone of its supply chain to support its retail stores network.
Objects of the Issue
* Repayment or pre-payment of a portion of loans and redemption or earlier redemption of NCDs availed by the Company.
* Construction and purchase of fit outs for new stores.
* General corporate purposes
Avenue Supermart’s financial track record has been impressive with its Revenue & PAT growing at a CAGR of 40.4% & 51.6% respectively over FY12-16. Its operating margins have improved consistently from 6.3% in FY12 to 7.7% in FY16 and further to 8.8% in 9MFY17. PAT margins have improved from 2.7% in FY12 to 3.7% in FY16 and to 4.4% in 9MFY17.
On all parameters (consistency in sales & profit growth and margin improvement), the company is ahead of its competitors like Reliance Retail, Future Retail and Spencer’s Retail. The company maintains low prices of products and has a competitive advantage because of factors such as buying huge volumes at low prices, owning real estate or entering in long term lease agreements, following cluster approach and targeting densely populated areas. The company focusses purely on food and grocery (F&G) niche, whereas its peers have made continuous efforts into diversification.
At the upper price band of Rs. 299 per share, the company is valued at 36.1x on FY17 EPS (9MFY17 EPS annualized), which reflects the company’s growth prospects, improving margins and strong financial performance.
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