D-Mart offer subscribed 5.8 times, brokerages bullish on Avenue Supermarts

The Rs 1,870-crore Initial Public Offer of equity (IPO) in Avenue Supermarts, owner of the D-Mart retail chain, was subscribed 5.8 times on Thursday, a day before close.

The 44 million-share offering has got bids for 253 mn shares. While the retail (meaning, non-wealthy individual) and high net worth individual (HNI) portions have been subscribed four times and five times, respectively, the institutional quota was subscribed a little more than nine times.The offering is a completely fresh issue and a price band of Rs 295 to Rs 299 a share has been fixed.

A majority of brokerages have recommended their clients subscribe for the issue. At the upper price band, the IPO is priced close to 58 times the earnings of Avenue Supermarts in FY16. In contrast, peers Future Retail and Trent are trading at 76 times and 125 times their FY16 earnings.

"Given its growth momentum, gross/Ebitda margin profile, return ratios and inventory turns, ASL dwarfs most of its listed peers, both domestic and international. We believe that the robust business model and focus on low costs will enable the company to report not only a strong profitable growth but also turn free cash-positive in the near future," said Emkay Securities in a note to its clients.

Another brokerage, Nirmal Bang, said Avenue Supermarts was one of the most efficiently operated of companies, evident from its highest return on equity (ROE) in the sector. "We expect ASL to continue its growth momentum, as the retail opportunity in India is very big and modern trade players like ASL have ample scope to grow. We believe ASL would command premium valuations and remain a market leader post listing," the brokerage said.

The company on Tuesday had raised Rs 561 crore from 35 anchor investors by allotting them shares at Rs 299 apiece, the upper price band.