D-Mart IPO oversubscribed by 104 times at INR 1.38 lakh crores

D-Mart, the retail departmental chain parented by Avenue Supermarts had an exceptional response to their initial public offering (IPO). Investors willingly believed in a surprisingly high premium and subscribed to their shares, thereby amounting to Rs. 1.38 lakh crores. The IPO was firmly aimed at to raise at around Rs. 1,326.70 crores.

National Stock Exchange (NSE) released data of the oversubscription which led to the figures rising at an unbelievable 104 times of the prescribed and anticipated value, as of 04:00 PM on Friday.

Radhakishan Damani, the frontrunner of Avenue Supermarts initially aimed at raising Rs. 1,326 crores by offering 4.43 shares. The IPO applications were received for over 462.96 shares. The reserved portion of qualified institutional buyers oversubscribed 144.58 times while the portion set aside for non-institutional investors subscribed 277.73 times and that of retail investors 6.91 times, according to CNBC-TV18. The company targets raising Rs 1,870 crore at a higher end of the price band of Rs 295-299 through the issue, which opened on Wednesday. On Tuesday, the firm raised nearly Rs 561 crore by allotting shares to anchor investors.

The D-Mart IPO, the biggest since PNB Housing Finance’s Rs 3,000 crore offer in October last year, received bids for 460.22 crore shares against the total issue size of 4.43 crore shares, data available with the NSE till 1545 hours showed. Avenue Supermarts on Tuesday raised nearly Rs 561 crore by allotting shares to anchor investors. The price band for the IPO has been set at Rs 295-299.

Avenue Supermarts plans to raise Rs1,870 crore through the IPO and the proceeds would be utilized for various purposes, including loan repayment. Nine merchant bankers—Kotak Mahindra Capital, Axis Capital, Edelweiss Financial Services, HDFC Bank, ICICI Securities, JM Financial Institutional Securities, Inga Capital, SBI Capital Markets and Motilal Oswal Investment Advisors—are managing the offer.

Avenue Supermarts has hit the Street with an initial public offering (IPO) on Wednesday. The operator of the retail chain, D-Mart, is one of the two major IPOs this week. The retail chain’s IPO is also significant on the back of its strong promoter entity, Radhakishan Damani. He is considered among the major names in the markets as a trader and value investor and this is considered to be his entry into the big league. The company targets raising Rs 1,870 crore.

D-Mart has been trying to do what Walmart did in the US — enter a territory, saturate it and achieve profitability.
– Amnish Aggarwal, Senior VP-Research at Prabhudas Lilladher

Avenue Supermarts was reserved 50 percent portion of public issue for qualified institutional buyers and out of which, 60 percent may be allocated to anchor investors. Meanwhile, 15 percent portion of the total issue size is reserved for non-institutional investors and the rest 35 percent for retail investors.

D-Mart operates close to 120 stories, most of them concentrated in Maharashtra and Gujarat with a retail business area of 3.59 million square feet located across 45 cities in India. The company has presence in Maharashtra(59), Gujarat(27), Telangana(13), Karnataka(7), Andhra Pradesh(4), Madhya Pradesh(3), Chhattisgarh(1), NCR(1), Daman(1) and Rajasthan(2). It opened its first store in Mumbai, Maharashtra in 2002.

In its draft prospectus, the company had said that a large chunk of the funds raised through the issue will be used to repay debt. Along with that, it will also redeem non-convertible debentures (NCDs) and purchase of fit-outs for new stores and general corporate purposes. As of March 31, 2016, the company had a topline of about Rs 8,600 crore and a net profit of about Rs 320 crore. D-Mart accounts for 48 percent of the company’s total retail spend.

The company’s earnings have been growing at 31 percent compounded for the preceding two years. Extrapolating that, the company is expected to report earnings per share of roughly Rs 7.6 for this financial year. An issue price of Rs 300 would mean a price earnings multiple of roughly 40 times estimated FY17 earnings.

Veteran promoter Radhakishan Damani, the owner of Avenue Supermarts, has been a value investor and trader in the stock market for decades now. His contemporaries hold him in high regard. Damani had made his fortune by investing in the shares of blue chip multinational corporations in the late 80s and early 90s. And while many of his bets post-2007 turned out to be immensely profitable, there were no stand-out calls. According to this report, the value of Damani’s holdings in listed companies stood at Rs 2,665 crore at latest market prices. Analysts cite D-Mart’s go-to market’s strategy similar to that of global retailer Walmart.

Promoters of Avenue Supermarts

  1. Radhakishan S. Damani;
  2. Gopikishan S. Damani;
  3. Shrikantadevi R. Damani;
  4. Kirandevi G. Damani;
  5. Bright Star;
  6. Royal Palm Trust;
  7. Bottle Palm Trust;
  8. Mountain Glory Trust;
  9. Gulmohar Trust; and
  10. Karnikar Trust

Market experts are already gung-ho about the Radhakishan Damani-promoted company’s IPO. Market expert SP Tulsian has hailed the business model of D-Mart and says improving sales mix and financials bode well for the company, he said. Avenue Supermarts RHP (red herring prospectus) for the IPO makes a classic case of study for business schools, said market expert SP Tulsian of sptulsian.com, adding, the price band makes Avenue Supermarts IPO “very attractive”. Meanwhile, grey market brokers say that the issue is quoting at a premium of Rs 220-240 in the unofficial market.

Avenue Supermarts competes with Kishore Biyani’s Future Retail. The company posted a net profit of over Rs 14 crore in FY16. Spencer Retail, owned by RPG Group, also competes with D-Mart’s operator. It posted a loss of Rs 168 crore in the last financial year. Strategy One of the most attractive propositions for D-Mart is its strategy of EDLP/EDLC (Everyday Low Price/Cost), which has large customers to the retail chain.

The company believes in cluster-based approach for expansion and will continue to grow business in existing regions of West, South and Central India. Its entire business focus lies on running the business at very tight cost. Additionally, Avenue Supermarts owns the property which houses these retail chains, thereby implying good real estate value as well.