The latest blockbuster to hit Indian stock markets is not any hi-tech start-up with a whole new disruptive technology. It’s a retail chain called Avenue Supermarts, promoted by one of India’s well known investors Radhakishan Damani. Upon listing on the 21st March, the shares of Avenue Supermarts, which owns and operates the retail stores, had beaten all other retail chains in the world like the Tesco, Costco and Walmart.
From the issue price of 299, the stock saw over 100% gains on the listing day itself, catapulting its founder Damani into the top 20 richest Indians, overtaking even Anil Ambani. Even after two weeks after listing, the buying interest in the stock hasn’t abated even a little. Many are wondering what’s so special about a company which runs another chain of retail stores in the already crowded marketplace with big names such as Reliance Retail, Future Group, Tatas and Birlas ! The answer may lie in the way D-Mart has carefully avoided the mistakes committed by the others.
There are several factors where D-Mart has successfully minimized the risks. One of the major factors observed by analysts is that it owns most of the properties, reducing lease-rental costs. Another, probably the most important, is that D-Mart has avoided rapid expansion in its initial years, and stuck to sales of fast moving goods, which allowed it to maintain a healthy balance sheet. With its operating expertise and dedicated customer base which keeps returning for the attractive discounts, D-Mart has been highly profitable compared to other retail chains. In fact, its compounded growth rate in last 3 years has been a phenomenal 35 % while big names worldwide struggle to achieve the double digit mark.
Though there is consensus among experts that Avenue Supermarts will be able to sustain its profitability and growth rate, they caution investors against rushing to buy at these astronomical valuations and suggest waiting for some dips, especially for those who haven’t been lucky to get IPO allotments.
– Arun kumar.