Avenue Supermarts IPO opens today: Here's what the brokerages say

D-Mart has been recording double-digit growth in the range of 10% - 14%.

ASL owns one of the most profitable hybrid supermarket called D-Mart in India. Photo: LinkedIn

Avenue Supermarts Limited (ASL) that runs supermarket brand by the name of D-Mart is beginning its initial public offer (IPO) on Wednesday March 8 and will end on March 10, 2017.

ASL plans to raise nearly Rs 1870 crore on offering of over 6.3 crore equity shares. and has fixed price band at lower end of Rs 295 per share and upper end of Rs 299 per share.

Many analysts like this IPO and have asked investors to subscribe.

Why?

ASL owns one of the most profitable hybrid supermarket called D-Mart in India.

D-Mart has a total of 118 stores as on December 2016, spread across 10 states with major presence is in Maharashtra (59 stores), followed by Gujarat (27 stores), Telangana (13 stores) and Karnataka with 7 stores.

Maharashtra accounts for 63% of sales while Gujarat and Telangana accounts for 19% and 10% respectively. D-Mart has been recording double-digit growth in the range of 10% - 14% in these states.

D-Mart expects to reduce debt by Rs 620 crore, Rs 320 crore and Rs 120 crore in FY18, FY19 and FY20 which could significantly reduce interest burden and improve profits. Recently in nine months period of current fiscal (9MFY17), the brand has paid an interest of Rs 90.7 crore.

Nirvi Ashar and Dhavan Shah analysts of KRChoksey said, “ This in turn could result company to stand at almost debt free level, which could improve return ratios further going ahead.”

Financial Performance:

Currently, ASL is at fourth position in terms of number of stores after Reliance (597 total stores), Future Group (500 total stores), Aditya Birla Retail (487 total stores) and Bharti Group (188 total stores).

Last fiscal (FY16), ASL registered revenues of Rs 8,650 crore, compared to its peers where Reliance had total revenue of Rs 6,650 crore and Future Group along with Bharti Group had total revenue of Rs 11,000 crore.

ASL's profitability is growing at a CAGR (compounded annual growth rate) of 51.56% from Rs.60.41 crore in Fiscal 2012 to Rs.318.76 crore in Fiscal 2016. For nine month ended period of current fiscal (9MFY17), profit after tax (PAT) of the company stood at Rs.387.47 crore.

Angel Broking said, "The share of organized players is expected to improve from 9% to ~12% in FY2020E, thus benefiting organised players like D-Mart."

Amnish Aggarwal and Gaurav Jogani analysts at Prabhudas Lilladher said, “The stock is being offered at 35x9mFY17 EPS which we believe is reasonable given strong growth outlook, solid business model and healthy return ratios. Recommend Subscribe."

Amarjeet S Maurya analysts at Angel Broking said, "Better RoE profile, promoter’s strong background, strategically located stores, intense focus on maintaining lower costs and strong brand perception are the compelling factors indicating that ASL is a long term story that will unfold going ahead. Thus, we recommend a SUBSCRIBE on this issue."

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