Mumbai: Analysts are turning cautious on Avenue Supermarts Ltd, which operates retail stores under the brand name D-Mart. Despite being the third biggest wealth-creating IPO of 2017 with 286% return so far from its offer price of Rs299 per share, the Radhakishan Damani-owned company has now more “sell" ratings than “buy" on Bloomberg. Out of 10 analysts tracking the stock on Bloomberg, seven of them have a “sell" rating on it.

According to Ambit Capital Pvt. Ltd, which has a sell rating on the stock, to achieve revenue compounded annual growth rate (CAGR) of 25% over the next decade, 30 basis points margin expansion and improved working capital, D-Mart needs to hike store roll out by four times (80 annually) by FY30, which is tough given the own store model. “Even Walmart which grew at an exhilarating 36% CAGR, never enjoyed such rich valuations," it said in a note on 15 December.

“To achieve such growth, D-Mart needs to hike store roll out by four times (80 annually) by FY30, which is tough given the own store model. Even Walmart which grew at an exhilarating 36% CAGR, never enjoyed such rich valuations," it said in a note on 15 December.

The research firm said that D-Mart borrows many Walmart principles like operational discipline and product mix and customizes them for India. However, it added that accelerating store addition on own store model is challenging plus stores in smaller towns may have lower throughput and hence lower margins.

D-Mart’s key margin driver-general merchandise and apparel has a low ticket size, triggers impulse purchases, is utilitarian and competes with the offerings of unorganized players.

On the day of its listing on 21 March, the Avenue Supermarts stock had risen 114.30% from its offer price of Rs299 per share. Avenue Supermarts’s market capitalization has touched Rs72,356.36 crore , up 80.94% from Rs39,988.21 crore when it was listed.

The company’s market value is now higher than that of 15 Nifty companies, including Yes Bank, Tata Steel, HPCL, Bosch, Hindalco Indu, Zee Entertainment, Ambuja Cements, Tech Mahindra, Aurobindo, Lupin and Dr Reddy’s.

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