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
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.