D-Mart tops IPO charts since 2010

Issue subscribed 104 times; attracts bids worth ~1.38 lakh cr

Investors across segments queued up for the initial public offering (IPO) of Avenue Supermarts, which operates the successful retail chain D-Mart, mainly in Maharashtra and Gujarat.

The ~1,840-crore offering, which closed on Friday, saw 104 times more demand than the shares on offer. The issue generated bids worth ~1.38 lakh crore — the most since Coal India’s IPO in 2010.

The so-called qualified institutional buyer (QIB) portion of the IPO was subscribed 146 times, high-networth individual (HNI) segment was subscribed 281 times and retail investor portion saw seven times more demand than the shares on offer.

Investors applied for 4.6 billion shares in the IPO, where only 44.37 million shares were being offered. D-Mart had already raised ~534 crore from anchor investors by allotting them 18.76 million shares.

Market experts say investors were enthused by the company’s financial track record, attractive valuations, compared to peers and strong growth prospects.

“Given the euphoria surrounding this issue, we were expecting this kind of demand. The success of the issue is a thumbs up to India’s retail sector, where D-Mart is one of the best company,” said Dharmesh Mehta, managing director & chief executive officer, Axis Capital. Added Narayanan Sadanandan, group head–investment banking, SBI Capital Markets, “The IPO had generated a lot of enthusiasm among investors during the roadshows. D-Mart is a wellknown brand with superior business model and good earnings visibility.”

Axis Capital and SBI Capital Markets were bankers to the issue, along with Kotak Mahindra Capital and five others. D-Mart is promoted by one the country’s ace capital market investor Radhakishan Damani. Along with his family, Damani — no longer on the board or management — will own 82.2 per cent stake in the company after listing, which will be valued at ~15,338 crore at the IPO price. The company will be valued at ~18,660 crore. The IPO is likely to be priced at the top end of the price band of ~295 to ~299 per share. D-Mart will mobilise ~1,840 crore (9.2 per cent dilution) from the IPO — around ~1,080 crore will be used to retire outstanding debt and ~367 crore will go towards setting up of new stores.

Between FY12 and FY16, DMart had shown compounded annual growth rate of 40 per cent and profit growth of 52 per cent. In the first nine months of FY17, the company had posted a profit of ~387 crore on sales of ~8,784 crore. On an annualised basis, the stock commands an enterprise value (EV) to sales of 1.7 times; EV to Ebitda (earnings before interest, tax, depreciation and amortisation) of 19.5 times, and price to earnings of 35.6 times.

The issue also saw nearly two million applications — one of the highest in recent times. Processing such a high number of applications will be a strain on the system, said bankers. Around ~79,000 crore worth of HNI bids are riding on the issue D-Mart will have to list at a premium of 50 per cent, if leveraged investors have to make money. However, the grey market premium suggests the listing gains could be even more.

The total application amount for the D-Mart IPO is the seven-most in the history of capital markets — highest being Reliance Power and Reliance Petroleum IPO in 2008 and 2006, respectively. The figures are not strictly comparable, as prior to 2010 QIBs could apply with just 10 per cent margin money. On the flip side, these days over 90 per cent of retail investors apply with minimum application amount of ~15,000, compared to earlier where average application amount was around ~1 lakh.