DMart may Seek ₹ 18k cr Val­u­a­tion at IPO

The Economic Times - - Companies: Pursuit Of Profit -

ET In­tel­li­gence Group: The ini­tial pub­lic of fer (IPO) of Av­enue Su­per­marts, the owner of DMart, which is likely to be floated in the next few weeks, is ex­pected to com­mand a val­u­a­tion of ₹ 18,000 crore, much higher than the ear­lier ex­pec­ta­tion of ₹ 7,000 crore.

Ac­cord­ingto ET sources, in­clud­ing in­vest­ment bankers and an­a­lysts, the com­pany re­ceived a tremen­dous re­sponse at its road­shows, be­ing In­dia’s most prof­itable re­tailer — on­line and off­line. The strong good­will of its pro­moter Rad­hak­is­han Da­mani in the in­vestor com­mu­nity has also helped.

Ac­cord­ing to sources, do­mes­tic fund houses are queu­ing up to meet the com­pany man­age­ment, which has al­ready con­ducted road­shows over­seas.“Iam­hear­ingth­atthe­m­an­age­ment is very se­lec­tive in the kind of in­vestors it wants to at­tract and hence is not giv­ing meet­ings eas­ily,” said an an­a­lyst with a lead­ing in­sur­ance com­pany.

VAL­U­A­TION COM­FORT

At ₹ 18,000 c r o r e , Ave n u e Su­per­martswill­be­val­ue­dat40­times its ex­pected FY18 earn­ings. “This is not at all ex­pen­sive for a com­pany which is likely to dou­ble turnover ev­ery three-four years and gen­er­ates high re­turn on in­vest­ment. This will be one of the top IPOs to hit the mar­ket in the last five years,” said a fund man­ager, who re­quested anonymity.

In the past four years, Av­enue Su­per­marts grew rev­enue by 40% and net profit by 52% an­nu­ally. In FY16, its re­turn on eq­uity and re­turn on cap­i­tal were 24% each. Its long term debt-eq­uity ra­tio was 0.7 at the end of March 2016.

EF­FECT ON OTHER RE­TAIL­ERS:

DMart’s up­beat val­u­a­tion is likely to buoy stocks of other re­tail­ers such as Fu­tureRe­tai­landCESC,whichowns Spencer’s Re­tail. Fu­ture Re­tail is ex­pected to re­port ₹ 18,000 crore in rev­enue and ₹ 320 crore in net profit for FY17. Its mar­ket cap is nearly half of the pro­jected rev­enue and 27 times ex­pected earn­ings. In com­par­i­son,

DMart’s val­u­a­tion is ex­pected to be 1.5 times rev­enue and 40 times earn­ings for FY17.

The Fu­ture Re­tail stock has gained 26% over the past month, which in­cludes 7.2% gain posted on Mon­day. San­jivGoenka-ownedSpencer’s,too,

has shown higher in­vestor in­ter­est. CESC, the hold­ing com­pany of Spencer’s, has gained 21% in one month, par­tially also due to news re­ports of a pos­si­ble de­merger of its re­tail and power busi­nesses.

Spencer’s is likely to re­port 12% year-on-year growth in rev­enue at ₹ 2,100 crore for FY17. It had re­ported an op­er­at­ing loss of ₹ 96 crore in the pre­vi­ous fis­cal. An­a­lysts ex­pect a turn­around by FY18. CESC earned ₹ 2,000 crore EBIT from the power busi­ness in FY16.

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