D-Mart IPO

About Company

D-Mart is an evolving giant in the retail supermarket chain, with a focus on value retailing. It is the third largest and most profitable in the F&G retail sector in India after Reliance retail and Future group. It offers a wide range of products with a focus on foods, FMGC and general merchandise & apparel product categories.

It started its first store in Mumbai in 2002 and as of 2016; they have 112 stores in the retail business area of 3.40 million sq. ft, located across 41 cities in India. They have been doing business by considering the approach to retail quality goods at competitive prices.

This year, Maharashtra contributed the highest part of the company’s revenue, which is 62.57 per cent, followed by Gujarat (18.83 per cent), Telangana (10.15 per cent), Karnataka (6.14 per cent), Andhra Pradesh (1.03 per cent), Madhya Pradesh (0.85 per cent) and Chhattisgarh (0.43 per cent). 

About the issue

The company is planning to rise 1,800 crore by 6,23,93,631 equity shares from this IPO.     IPO will be in the range of Rs. 290-299.Subscription will be starting from 8 March to 10th march and the listing will be on 21 March 2017.

Objects of issue

The company wants to utilise Rs 10,800.00 million of the net proceeds towards repayment of the term loans availed by the company and redemption of NCD’s availed by the company. The company wants to utilise Rs 1,879.50 million, out of the net proceeds towards the purchase of the new fit outs for their new stores, which will have an aggregate built-up area of 21,00,000 sq. ft and utilise 1,786.50 million to undertake construction of new stores with an aggregate built-up area of 9,00,000 sq. ft which will be undertaken in the year 2018, 2019 and 2020, respectively. The current D/E is 0.95x.

Business model

D-mart has always targeted middle class and upper middle class, who want to save money on products. D-Mart’s prices are 6-7 per cent lesser, as compared to its peers. Though rent is always a major operating expense for any retailer, instead of reducing other factors, D-Mart targets its major expense and tries to eliminate it.

Out of all the stores it runs, D-Mart owns most of properties, which helps it to eliminate its rent expense. Costs are again kept low by using basic and cost effective interior unlike bigger retailers who use showy interior. Besides, D-Mart has most of the stores in Tier II and III cities, where operating expenses are much lower. Moreover, it also saves 2 per cent-3 per cent of suppliers as well, by paying them in 48 hours of delivery, where others take 30 to 60 days credit period.

 In short, D-Mart knows the importance of optimum utilisation of resources. Due to these strategies, D-Mart has achieved huge profit before its peers. We expect that this company will continue to grow and earn much better in future. However, the company may also have some impact of significant increase due to e-retailing.

Retail Industry Analysis

The Indian retail industry is notorious as a fast-paced industry, due to the entry of numerous new players. It accounts share of 10 per cent in India's GDP and over 8 per cent of employment. India is world’s fifth largest global destination in retail space. The country's retail market is expected to double to USD 1 trillion by 2020 as this expansion will be aided by urbanisation attitudinal shift. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand and reach the growth rate up to 20 per cent per annum. Whereas, it’s traditional trade is likely to expand by 10 per cent. E-business has also revolutionised the retail market, which is expected to reach USD 700 billion by 2020.

In 2010, there was huge growth in e-retailers, which again forced retailers to redesign their business models. Indian Retailers who have adopted three success factors like format focus, category focus and geography focus, have witnessed a profitable growth.

Share of food and grocery and general merchandise category in organised B&M Retail

Currently, Food & Grocery has major share in retail at 67 per cent and will continue to be leading the market in FMGC sector. It has grown at 33 per cent CAGR from 4bn in 2012 to reach USD 13 bn in 2016 and is expected to grow further at a CAGR of 26 to reach at 31 bn till the end of 2020.

E-retailers are expected to reach at par with physical stores in the next 5 years. India is expected to become the world’s fastest growing e-commerce market, driven by robust growth in investments, majorly from FDI with a sum of USD 537.61 million, as there is a significant rise in the need for consumer goods in different sectors. Many companies have also invested in Indian retail industry from the year 2000-2016 and rapid growth in internet users. After seeing the potential of retail industry, the government is also taking various initiatives to improve the retail industry in India. For example, the government has allowed 100 per cent FDI investment in retail etc.

Plan of Expansion

The company is planning to develop its network by opening various stores in India, mostly in southern and western cities in India, as it is getting maximum revenue from these regions. The company also intends to strengthen store network in Andhra Pradesh, Telangana, Madhya Pradesh, Karnataka, Chhattisgarh, Tamil Nadu and northern India. The company recently opened a new store and is planning to utilise a portion of the net proceeds for setting up new stores, aggregating built-up area of 2,100,000 sq. ft. over fiscals 2018, 2019 and 2020.

Peers:

Its major competitor includes Big Bazaar, Reliance Retail, Spencer’s, hyper city and Star bazaar as well as the traditional retail stores and others. D-Mart's majorly competing areas include food, FMGC, general merchandise & apparel product categories and also in non-branded clothes etc.
Financial Performance

The company has registered revenue growth of 40% CAGR  from year 2012-16 EBITDA Margin is rising at yoy CAGR of 52% and PAT is also growing at CAGR of 50% from year 2012- 2016.

The company looks attractive as its EPS is 5.72 and considering upper price band P/E is 52.27x which  is much lower than its peers like future retail and Trent limited considering a really strong financial performance of a company, we suggest you to subscribe this IPO to get benefit from listing gains.

Source : http://www.dsij.in/article-details/articleid/18795/d-mart-ipo.aspx

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