D-Mart parent Avenue Supermarts working on Rs1,200 crore IPO
Likely to be launched in the second half of 2017, the initial public offering could value Avenue Supermarts at around Rs10,000 crore
Mumbai: Avenue Supermarts Ltd, which owns and operates hypermarkets and supermarkets retail chain D-Mart, has started discussions with investment banks for an initial public offering (IPO), three people aware of the development said.
The company, one of India’s fastest growing modern retailers, could raise ₹ 1,000-1,200 crore through the IPO, said one of the three people mentioned above, requesting anonymity as he is not authorized to speak to the media.
“The company has been in discussions with various banks for the last three to four months. They are expected to appoint a lead banker soon to start working on the draft IPO prospectus,” he added.
Owned by investor Radhakishan Damani, D-Mart is a pure food and grocery retailer. Both Reliance Industries Ltd (RIL) and Future Group have multiple retail formats in categories such as digital, home, apparel and footwear besides food and groceries.
“We have been evaluating an IPO and have initiated talks with various bankers. However, these discussions are still in the early stages,” said Neville Noronha, chief executive of D-Mart’s parent Avenue Supermarts Ltd. Noronha declined to share details on the size of the expected IPO or timeline for the same.
D-Mart, which launched its first store in 2000, has focused solely on expanding its hypermarket retail chain.
Investors have shown good interest in IPOs of consumer facing companies in the recent past. The IPO could value D-Mart at around ₹ 10,000 crore, added one of the persons mentioned earlier.
In the last 18 months, several consumer companies, including Coffee Day Enterprises Ltd (Cafe Coffee Day), Manpasand Beverages Ltd, Parag Milk Foods Ltd and Adlabs Entertainment Ltd, have gone public.
In 2014-15, D-Mart reported a profit of ₹ 211 crore, higher than Reliance Retail’s ₹ 159 crore and Future Retail’s ₹ 153 crore, Mint reported in October 2015.
Its revenue during the period was ₹ 6,450 crore—37.23% more than the previous year’s.
Reliance Retail’s revenue grew 21% in the same period, while revenue at Tata Group’s Trent Hypermarkets Ltd and Future Retail fell.
The numbers for the 2015-16 are not available since D-Mart is a private company. The firm’s revenue has grown at a compounded annual rate of around 30% over the last five years.
“The D-Mart share sale is expected to hit the markets only in the second half of next calendar year, as the discussions are still in the initial stages right now,” said the second person, adding it is likely to be a mix of fresh issue of shares and a sale by the promoter entity.
Currently, there are around 110 D-Mart hypermarket stores in 26 cities. On an average, the company has been opening 10-15 stores per annum and hopes to continue or accelerate it depending on the market, said Noronha.
Reliance’s value retail business (which sells food and groceries) has 597 stores spread across Relance Fresh and Reliance Marts. These accounted for about 50% of Reliance Retail’s total revenue of ₹ 21,612 crore in 2015-16.
Future Retail has multiple formats which includes Big Bazaar hypermarkets, apparel and lifestyle chain FBB, Food Bazaar and speciality formats HomeTown and eZone. In May 2015, Future Retail acquired Bharti Enterprises’s retail business, Easyday, bringing Easyday supermarkets and hypermarkets under its umbrella.
D-Mart’s better financial performance in comparison to its peers has been driven by its differentiated business model, wherein 90% of D-Mart stores are located in properties owned by the firm, unlike most retail firms which are burdened by the high cost of rentals.
Also, most D-Mart stores are in the suburbs in the metros and in tier II and tier III cities, keeping operational costs low.
D-Mart’s business model is similar to international retailers such as Wal-Mart Stores Inc., Swedish furniture retail giant Ikea, Lidl Stiftung & Co. KG, a German-based discount chain, and even speciality retailers like Zara and Uniqlo.
“It’s best in class in terms of operating matrices—margins are healthy and has been profitable for a while,” said Santosh Verma, director at IDFC Capital, adding the company has got its strategy right with a good product assortment and top executives who ave worked with large multinational companies.
Last year, the company hired Uday Bhaskar, who has worked for over two decades with Cincinnati-headquartered Procter and Gamble Co. in various roles across India, South East Asia and Europe as chief operating officer (retail).
Bhaskar has led the rebranding exercise for the retail chain since joining and is also planning its strategy to sell across multiple retail channels.
According to Dhanraj Bhagat, partner at Grant Thornton India Llp, e-commerce is a major competition for retail chains and it is only going to intensify going ahead.
“E-commerce is definitely a major competition for the retail chains, especially in commodity items where there is no need for customers to touch and feel the products to make the purchase decision. Physical format retail stores need to ensure that they provide the relevant experience to customers to ensure that they don’t lose out to e-commerce,” said Bhagat.
swaraj.d@livemint.com
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