D-Mart IPO price band at Rs295-299 per share

Mumbai: Avenue Supermarts, the parent of the D-Mart chain of food and grocery supermarkets, on Wednesday announced a price band of Rs295-299 per share for its initial public offering (IPO).

The issue, worth Rs1,870 crore, will open on 8 March and close on 10 March, while the anchor issue will open a day earlier, on 7 March. The company is divesting 10% of its total equity shares.

Thirty-five percent of the issue will be available to retail investors, 50% to qualified institutional buyers or QIBs and 15% to non-institutional bidders on a “proportionate basis”, the company said in a release.

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Avenue plans to use Rs1,080 crore to repay outstanding debt and Rs300.6 crore to purchase and construct new stores. The firm said it will announce use of the remaining funds once the share price is finalized, which will be the day the firmm is listed. The company also shared financial numbers for the nine months ended 31 December. Its debt stands at Rs1,407.8 crore, with a debt-equity ratio of 0.74.

Radhakishan Damani, with his family, owns 91.34% of Avenue Supermarts.

“Mr Damani was very actively involved in the company until 2011,” Neville Noronha, CEO of Avenue Supermarts, said, adding, “assortment is his speciality and he acts as the guide to our assortment team.” Assortment refers to the mix of brands offered in each category sold by a retailer.

Noronha said Damani no longer played an active role in the firm and preferred to leave its running to professionals.

Noronha identified Avenue Supermarts’ emphasis on “value retailing”, or keeping a restricted number of products per category, and ownership of its stores as its biggest value-creating factors.

Avenue Supermarts is one of the most profitable retailers in the country, and posted a Rs300.92 crore profit after tax on revenues of Rs8,800.03 crore in fiscal 2017 until December 2016.

However, D-Mart’s margins are thin at 4.4% (profit after tax). It makes most of its money from the low-margin food business. In fiscal 2017, until December 2016, 52.8% of the company’s revenue came from the food business, and only 27.63% from its highest margin category, general merchandise and apparel. General merchandise includes home appliances, crockery, bed and bath among other goods.

“For us, the food business is what brings footfalls,” Noronha said. “But we also try to ensure consumers stay to buy some of our higher margin goods.”

“For us, business is a science, but assortment is an art,” Noronha said. “We usually have lower SKUs (stock-keeping units) than the industry average, about 40-60% (of the average). We don’t give customers all that they want, and feel we may know more than the customer. It is very counter-intuitive.”

Noronha also emphasized Avenue Supermarts’ strength lies in the fact that it owns most of its stores. D-Mart operates 118 stores with 3.59 million sq. ft of store space, across 45 cities. “We follow the ownership model and we like to own our properties,” Noronha said. “However, we also lease and are not averse to leasing properties.” He declined to share details of how many stores Avenue owns and leases.

Despite going to the market for funds, Avenue Supermarts is not planning to speed up its expansion plans. “We are likely to be in states where we are already present, and 70-75% of sales will come from existing cities,” Noronha said.

The company records 59% of its sales from Maharashtra and Daman, and 18% from Gujarat, despite being present in eight states.

“Unlike most retailers who are focused on cities, we focus on states. This is a thin margins business, so it is important for us to continue our presence in the states we are in. We do not open a new store, even if our finances allow us to, unless we are sure we can run it as efficiently as our existing stores,” he said.