Retail chain DMart goes public this week, eyes ₹1,870 cr

MUMBAI: One of India’s most profitable retail chains is set to go public, and the market is licking its chops.

From March 8 to 10, Avenue Supermarts Ltd, owner of Mumbai-based retail chain D-Mart, will accept bids from the public to sell 10% of its shares to raise ₹1,870 crore. A day earlier, it will issue shares to anchor investors on a discretionary basis.

D-Mart is owned by Avenue Supermarts, founded in 2002 by Radhakishan Damani, investor and mentor to stocks guru Rakesh Jhujhunwala. Damani is selling 10% in the company for ₹1,870 crore in the initial public offering (IPO). Each share is priced at ₹295-299. Along with his family, Damani owns 91.34% of the company. After the issue, they will own 82%, preserving the family’s hold on the company.

Avenue Supermarts makes more profit than Kishore-Biyani owned Future Retail that runs Big Bazaar and EasyDay, and Reliance Retail that runs Reliance Fresh. Last financial year, it clocked ₹8,600-crore revenue, and a profit of ₹300.21 crore. Its profit margin of 3.4% in 2015-16 rose to 4.4% in this fiscal until December 2016. In contrast, Reliance Retail, which has double the revenue of Avenue Supermarts, made ₹306.54-crore profit, while Future Retail made only ₹14.55-crore in profit.

Why does D-Mart have such attractive numbers?

One, D-Mart owns most of its stores instead of leasing out space like other retailers. While it must invest large sums of money to set up stores, it is protected from spikes in rent. D-Mart grew from 45 stores in 2011 to 118 stores until December 2016. Despite owning so much real estate, its debt-equity ratio is only 0.74, with a total debt of ₹ 1,407.8 crore.

Two, D-Mart sells a restricted number of products per category, keeping inventory and costs low. “For us, business is a science, but assortment is an art,” Neville Noronha, CEO of Avenue Supermarts had said earlier.

Three, D-Mart expands its store footprint slowly, building presence in one city, area, or state, before venturing into another. And finally, it does not run discount sales. Instead, it sells certain “value retail” products like foods and staples, at a lower price every day.