DMart’s parent is now the world’s most expensive retail stock

Avenue Supermarts Ltd, which runs the D-Mart grocery chain, is now the world’s most expensive retail stock, following a bumper listing in March and steady gains thereafter. Analysts believe the company’s long-term growth story remains lucrative, but do not rule out a near-term pause in the stock’s rally.

On its market debut on March 21, Avenue Supermarts rose 114.30% from its offer price, and has been gaining since. On Tuesday, it closed at ₹778.20, up 160.27% from the offer price. Its market cap is now ₹48,566.25 crore. A day earlier, its stock hit a record ₹806.80, achieving a market cap of ₹50,351.13 crore.

JP Morgan estimates 27% revenue and 34% earnings per share (compounded annual growth) over fiscal years 2017-20 driven by store additions, healthy same-store-sales growth, inflation and modest margin improvement.

It believes the premium valuations commanded by Avenue Supermarts are justified as it has almost 3-4 times EPS CAGR than the global/regional peers.

JP Morgan expects Avenue Supermarts to post a EPS CAGR of 28% over calendar years 20172019, and those of American peers Wal-mart Stores Inc, which is the world’s largest retailer, Costco Wholesale Corporation, at around 7% and 11%, respectively.

JP Morgan sees other Indian retailers Trent Ltd and V-Mart Retail Ltd posting EPS CAGR of 34% over the same period.

“We were expecting it to reach ₹660 in 18 months. It is already beyond that level. The company’s operations are the best in the sector,” said R Sreesankar, head of research at Prabhudas Lilldher Pvt Ltd the brokerage started covering the stock on March 21 with a “buy” rating”.

However, there is some discomfort regarding valuation.

“The market cap of this company is around ₹50,000 crore. So, if they have 150 stores right now, the valuation would be valued at more than ₹300 crore per store,” said investment advisor Sandip Sabharwal, owner of Asksandipsabharwal.com.

“One can buy an entire mall for that price (of one store).”

The supermarket chain, with a focus on value retailing, opened its first store in Mumbai in 2002, and had expanded to 118 outlets as of January 31.

Its net profit grew at a CAGR of 40.55% from fiscal 2014 to ₹318.76 crore in fiscal year 2016.