D-Mart IPO hits market today: What brokerages have to say

The company on Tuesday allotted little over 1.87 crore shares to 35 anchor investors at the upper price band of Rs 299 apiece.

It has mopped up nearly Rs 561 crore, according to a filing to the BSE. Government of Singapore, JP Morgan, Smallcap World Fund, New World Fund, Fidelity, T Rowe Price, HDFC MF, Reliance MF, ICICI Prudential MF and SBI MF are among the anchor investors.

D-Mart is among the most profitable food and grocery retail chains in India. The firm clocked a profit of Rs 300.21 crore in fiscal 2016 on a revenue of nearly Rs 8,600 crore. Its profit after tax (PAT) rose 50 per cent year-on-year. Since FY 12, the firm has logged 100 per cent rise in its revenue every two to three years.

ALSO READ: D-Mart IPO: Operator Avenue Supermarts raises Rs 561 crore from anchor investors

Part of the net proceeds from the fresh issue will be used to trim the debt of the company, while the rest will be utilized for the construction and purchase of fit outs for the new stores.

Is the issue worth subscribing? Here's a look at what leading brokerages and research houses suggest.

Nirmal Bang Securities

Avenue Supermarts is a long term story and should be viewed from 2-3 years point of view. We like the business model of the company given its lean cost, customer centric focus and cluster based ownership model. At upper price band of Rs 299, the stocks looks attractive and recommend investors to subscribe the issue for listing as well as long term gains.

KR Choksey

We believe that although the company has been following different business model such as ownership (higher capex against lease model) vis-a-vis rental by other large players like Future Retail and Trent, the key ratios such as average ROE & ROCE has been lingering higher at 15% & 10% between FY12-16 against industry average of 7% & 5% respectively. Further, the company has total debt of Rs.12.4 bn at the end of 9MFY17, which is expected to reduce by Rs. 10.8bn over FY18-20. This in turn could result company to stand at almost debt free level, which could improve return ratios further going ahead. Apart from this, we believe that company has also witnessed a decent growth in terms of sales per store (CAGR: 18%) and sales per sq feet (CAGR: 16%) over the period of FY12-16. It recommends subscribe to the issue.

YES securities research

At the price band of Rs 295 - 299 per share, the IPO is priced at a PE of about 58.5x its consolidated FY16 EPS and about 36.1x its 9MFY17 annualized profits, which makes it a fairly priced proposition. Having said that, listing gains cannot be ruled out for this issue given the high goodwill attached to the promoter group, the 'D-Mart' brand and the strong track record. We recommend an APPLY on this issue.

Choice Broking

Part of the net proceeds from the fresh issue will be used to trim the debt of the company, while the rest will be utilized for the construction and purchase of fit outs for the new stores. Valuation & recommendation: At the higher price band of Rs. 299 per share, ASL's share is valued at a P/E multiple of 58.5x (to its restated FY16 EPS of Rs. 5.1), which is at significant discount to its peer average of 482.7x. On P/BVPS and EV/EBITDA front, it is valued at multiple of 12.3x and 29.6x, respectively, as compared to peers average of 6x and 104.3x. Considering its efficient operating performance, the target market segment, attractive valuation and future growth prospects, we recommend a "SUBSCRIBE" rating for the public issue

Angel Broking

At the upper end of the price band, the pre-issue P/E works out to be 32.5x its annualised 9MFY2017 earnings, which is lower compared to P/E multiple of its peerss i.e. Trent - 73.9x, Shoppers Stop - 123.8x and Future Retail 36.5x. 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.