Retail brokerages ask clients to subscribe to D-Mart IPO

The supermarket operator operates 118 stores across 45 cities

Most retail brokerages are recommending their clients to subscribe to Avenue Supermarts’ (ASL) initial public offering (IPO). Analysts are enthused by the company’s superior financial track record and return ratios, strong growth prospects and attractive valuations. Following are edited excerpts from ASL’s IPO notes:

Emkay

ASL is looking for a valuation of Rs 18,660 crore at the upper end of the price band. On an annualised 9MFY17 financials, the stock demands an enterprise value (EV) to sales ratio of 1.7 times, EV to Ebitda (earnings before interest, tax, depreciation and amortisation) of 19.5 times, and price to earnings of 35.6 times. 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.

Anand Rathi

ASL’s IPO is priced at 58 times FY16 earnings at upper price band while its nearest peer Future Retail and Trent are trading at 76 times times and 125 times respectively. While on the FY-17 annualised basis the company’s IPO, is priced at 36x times on upper band while its peers Future Retail and Trent are trading at around 37 times and 20 times respectively. We believe ASL’s IPO is attractively priced at current price band considering its financial performance and growth prospects.

Prabhudas Lilladher

ASL, which runs D-Mart brand of Hybrid Supermarts in nine states, is the most profitable value retailer in India. ASL has consciously followed a strategy of owning real estate in stores (7?7.5% of sales savings); cluster-based strategy focusing on a few states (Maharashtra and Gujarat are 82% of sales); avoiding own labels in food and non-food FMCG; Everyday low prices and everyday low costs which has enabled the company to achieve 14 times inventory turns and return on equity (ROE) and return on capital employed (ROCE) of 24%. We believe the IPO valuations are reasonable given strong growth outlook, solid business model and healthy return ratios.

Nirmal Bang

ASL’s revenue has grown at 40.4% CAGR between FY12-16 while profit after tax grew faster at 51.9% during the same period. We believe ASL is a long term story and should be viewed from 2-3 years point of view. It is one of the most efficiently operated companies which is evident from its highest ROE in the industry. 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 would remain a market leader post listing. At upper price band of Rs 299, the stocks looks attractive and recommend investors to subscribe he issue for listing as well as long term gains.