DMart may Seek ₹ 18k cr Valuation at IPO
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.
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.