DMart IPO Buzz Brings a Wind­fall for Re­tail Stocks

In grey mar­ket with shares quot­ing at 25-50% pre­mium; an­a­lysts warn other stocks could fall

The Economic Times - - Smart -

Mum­bai: Shares of listed re­tail com­pa­nies are rid­ing the wave of an im­pend­ing ini­tial pub­lic of­fer (IPO) by Av­enue Su­per­marts — the owner of DMart chain of stores. DMart, pro­moted by lead­ing eq­uity in­vestor RK Da­mani, has whipped up a frenzy in the grey mar­ket where its shares are quot­ing at 25-50% pre­mium to the ex­pected IPO price. This has sparked in­vestor in­ter­est in nearly a dozen listed fimrs in­volved in ei­ther sin­gle or multi-brand re­tail, driv­ing up their share prices in the last two months.

Shares of Fu­ture Re­tail, Fu­ture Mar­ket Net­works and CESC (owner of Spencer’s re­tail) have ral­lied 30145% since De­cem­ber 1 — when talks of D-Mart’s pro­posed IPO sur­faced in the mar­ket. While the broader bench­mark in­dex S&P Sen­sex has risen by 8.68% since De­cem­ber 1, the BSE Mid-cap in­dex has gained 9.3% dur­ing the pe­riod.

“The magic of a mar­ket-savvy pro­moter like Da­mani has got the en­tire re­tail sec­tor re-rated,” said SP Tul­sian, an in­de­pen­dent eq­uity ad­vi­sor. “While Da­mani’s per­cep­tion has def­i­nitely helped re­tail sec­tor, there is a be­lief that brick-and-mor­tar pol­icy still works for re­tail busi- ness. E-com­merce has failed to make its mar­ket so far in the seg­ment.” DMart’s IPO may raise around ₹ 1,800 crore, which im­plies a val­u­a­tion of 40 times the ex­pected FY18 earn­ings. The com­pany is be­ing val­ued at around ₹ 18,000 crore by its pro­moter, known for his stock pick­ing skills for over two decades now. Da­mani was ranked 98 on In­dia’s rich list by Forbes in 2015 and holds large stake in a range of com­pa­nies, in­clud­ing VST In­dus­tries and ce­ment maker In­dia Ce­ments.

In last f o u r ye a r s, Av­enue Su­per­marts recorded over 50% growth in its net profit ev­ery year, while its rev­enue rose 40%. The com­pany’s re­turn on eq­uity and re­turn on cap­i­tal rose by 24%. The Street is agog with ru­mours that high net­worth in­vestors are mop­ping up DMart shares in grey mar­ket. This could en­sue a buy­ing frenzy when DMart lists as sell­ers in grey mar­ket scram­ble to buy shares on bourses to give de­liv­ery.

An­a­lysts, how­ever, warn that the ap­peti­tie for oth­ers re­tail stocks could be short-lived.

“D-Mart’s grey mar­ket frenzy may at­tract in­vestors to other listed play­ers but each are re­quired to be an­a­lysed in­di­vid­u­ally as not many have been suc­cess­ful in copy­ing Da­mani’s busi­ness model,” said Mehra­boon Irani, prin­ci­pal & head, pri­vate client group, Nir­mal Bang Se­cu­ri­ties.

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