The market valuation of Avenue Supermarts, the operator of retail chain DMart, surged past the Rs 1 lakh crore-mark in intraday trade on Monday. On Monday, share prices of the company hit a record high of Rs 1,619.95 which took its market value to Rs 1.01 lakh crore. However, the stock pared most of its early gains and ended the session at Rs 1,593.80.
At present, the stock commands a market capitalisation of Rs 99,466.59 crore. With this, Avenue Supermarts became the 29th biggest company in terms of market capitalisation and the only retail chain among the top 30 companies in terms of market value.
The top five companies by market capitalisation are TCS, Reliance Industries, HDFC Bank, Hindustan Unilever and ITC. The surge in the Avenue Supermarts stock on Monday helped its promoter Radhakishan Damani to become the ninth-richest Indian. At present, Damani has a net worth of $9.2 billion, according to the Bloomberg Billionaire Index.
As of March 2018, Damani personally held a 39.41% stake in Avenue Supermarts, according to data sourced from Captaline. Avenue Supermarts got listed on bourses on March 21, 2017, at Rs 604.40, a whopping 102% above its issue price. The initial public offering of Avenue Supermarts was subscribed 104 times with investors bidding for 463.32 crore shares of the 4.43 crore shares on offer. Since its debut, the stock has risen 433% above its issue price.
“We expect 25 to 30% growth annually for the next two years at least regarding EBITDA. Profit could be even higher because it has got good operating leverage. It has the highest sales per square feet among all companies in India in that space, so you get most of the supply at one of the lowest prices. In retail normally companies have underperformed because either debt levels are too high or margins are not sustainable.
In D-Mart, those things are not there the debt levels are completely under control, margins have been expanding in the last four to five years their margins on EBITDA and gross margins have kept on expanding. They have very high room to grow because most of their stores are from Gujarat and Maharashtra. Even in Maharashtra also they have a huge room to grow,” said Abneesh Roy, senior vice president of institutional equities at Edelweiss Financial Advisors.
However, some analysts expressed concerns about the high valuations. “The valuation is expensive. The quality of the management compared to others this management has expanded the company using cash flow, and they have expanded it well. It is the most profitable, and it has the highest margin in the retail segment. Even if they grow at 30% it will take time to catch up with the valuation,” AK Prabhakar, Head of Research at IDBI Capital. “Currently valuations are rich. But it’s an excellent compounding story. Buying at correction is advised,” said Roy.