Sunday, April 12, 2020

The curious & inexplicable numbers of Avenue Supermarts (D’ Mart)


Every investor on this planet wants to strike as big as Buffett at some point in his life at least once. And this brethren is secular, always researching, thinking calculating and finding that one multi-bagger that would be life changing and altering. This cannot be denied that more money can / has been / could, be made in stock markets than any other asset class. As I write this piece, the evergreen “Gold” is down 4% which is seemingly huge for its safe-haven reputation.

So as Avenue trades at close to 130 times its trailing earnings, (in spite of the market meltdown) and much after and higher than its QIP at INR 2049 per share some numbers do solicit attention and analysis. 

Recently the promoter Sh. Radha Krishna Damani catapulted to be the second richest man in the country second only to Mr. Mukesh Ambani, with Avenue’s MarCap of 20.6 Bill USD, I was intrigued to learn that Avenue has only 200 stores pan-India each store enjoying a MarCap of 103.3 Mill USD. (InR 775 Crores per store)

For the record, Walmart has 11500 (57.5 times Avenue) Stores, does an annual sale of 520 Bn USD (165 times Avenue), and MARCAP of 333 Bill USD (just 16 times Avenue) and trading at a PE of 22 with a Div Yield of approx. 2%

Avenue's Sales grew between FY16/17/18/19/ @ 39%/26%/33%/18% respectively YOY so on an average they grew at 29% YOY and by that run-rate it should be clocking annual sales of 50000 Cr or 6.66 Bill US$ in FY 22-23

The shareholders, of a company that hasn’t decided to start paying dividends inspite of this stellar performance will have to depend on capital appreciation of stock and hypothetically recover their investment in ~130 years (if EPS of Rs. 19.56 was to remain constant).

Now lets look at the numbers:
  • Avenue Has 200 stores
  • Opens for 11 hrs a day approx.
  • If the rush / customer inflow /outflow is on a bell curve pattern, peak operation hrs could be considered at 6-7/day but we still take 11 hrs for the purpose of liberal brevity
  • @23500 Cr of annual rev it does 118 Cr per store per annum
  • Or 32.43 lacs per/day per store
  • And if the store is open for 11 hrs it would be 2.95 lacs  per hr per store
  • And at ticket size of say 1500/customer
  • D’Mart is through putting 196 customers per hour per store in its 11 hr shift
  • Or
  • Say 3.28 customers per minute/store across the entire chain of 200 stores, without a moment’s pause, each customer spending Rs 1500 in a matter of a few mins per till.

That’s a bit of a statistic and efficiency for an Indian company and it reminisces the memories of another company that wanted to sell its mango juice to every Indian and was a market darling of many Mutual Funds and Asset Managers for the longest period of time.

And By Jove, with these numbers and efficiency, Avenue deserves a valuation of 1000 PE and not just 115 because then Jeff Bezos should be applying for a job as an apprentice with Avenue Supermarts.

Investors / Shareholders / Customers if You cannot get out of D'Mart after shopping for a min of Rs. 1500 within 18.29 seconds, You are just wasting someone's time. 

Disclaimer:
No share ever bought in Avenue/No personal interest thru any entity personal or related

15 comments:

  1. Valuations don't matter if you are one of the biggest operators in Indian stock market.

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  2. Awesome as your other articles are....and the facts represented in a straight manner....

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  3. Interesting analysis. Clearly a bubble in the making...

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  4. Sir 200 stores almost 80% own stores, per sq ft sales higher than wall mart, expansion on internal accrual, virtually debt free and cash milking cow with high growth above avg market growth and losing competitor like Future group, star bazar. Valuation of HUL, nestle is also very high & big time loss making Amazon & flipkart quoting high. please do 360* analysis & valuation is something we dont control no point cribbing & comparing with mango juice manufacturer alone don't serve & FOMO too. All the best

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  5. 3.28 customers per minute from how many check out counters? Typically a dmart keeps 6-7 counters operational on average. That translates to 2 minutes per customer. Which while tough, Dian not sound so outlandish

    Additionally, as a dominant retailer, companies pay dmart for better product placement. Not sure what those numbers are.

    That revenue is not attributable to customers. Similarly, online sales and home delivery numbers need to be adjusted and then one can arrive at realistic numbers.

    Good analysis !!

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  6. No retailer has made money esp in Indian market where your core competency is cheap price .. How can this be such a great exception.. It will end like all things end

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  7. Perhaps the only reason for such a rich valuation is the plan of this company to open 200 new stores as fast as possible. In the present scenario this is doubtful. Will supermarket shopping for groceries and stuff decline after Corona?

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  8. Few aspects never to be missed in business where margins are wafer thin.

    Most properties are owned and so there is no pressure on cash flow to recurring rents.

    Immesnse bargaining power with brands,which is passed on to end consumer.

    Vednor payments released promptly.
    Thereby no disruption in supply and hence customer satisfaction is high.

    Non food business healthy contribution which is typically high margin business.

    Product mix highly localised.

    Fantastic IT set up. Esp checkout which is critical in large volume business. Offer and schemes work seamlessly.

    Am no expert on this. Just sharing some observations c

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  9. What about the Nation Handloom as they also have more foot falls compare to DM 8n city Ahmedabad...

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  10. I see that there are some eerie similarities with this story https://finshots.in/archive/luckin-coffee-fraud/
    Do you suspect fraud and if so, to what extent?

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  11. Excellent article mate..good perspective ..

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  12. You are forgetting one thing: expansion. I'll come back and laugh at this article when DMART opens its 1000th store and you are still preplexed by its "valuation".

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  13. reliance electronics division does 45k cr sales, whirlpool one of the leading player does 6k cr sales and major mobile phones get sold through ecommerce. just thinking on 45k cr sales figure. Can you figure out?

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  14. Rs.1500 per customer is very low... How much does a family of 4, spend on groceries excluding milk and rice for a month? ... Small Shopkeepers near remote villages can buy at dMart and resale...

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Your comment is immensely appreciated and will be published for a discussion - soonest. Thanks. manu

 
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