MUMBAI: Shares of listed retail companies are riding the wave of impending initial public offer (IPO) by Avenue Supermarts – the owner of D-Mart chain of stores.
D-Mart, promoted by leading equity investor R K Damani, has whipped up a frenzy in the grey market where its shares are quoting at 25-50 per cent premium to the expected IPO price.
This has sparked investor interest in nearly a dozen listed companies involved in either single- or multi-brand retail, driving up their share prices in the last two months.
Shares of Future RetailBSE -3.14 %, Future Enterprises, Future Market Networks, Future Lifestyle Fashions, Future Consumer, V Mart Retail, V2 RetailBSE -1.26 %, Bella Casa Fashion, TrentBSE -0.54 % and CESCBSE -0.22 % (owner of Spencer’s retail) have rallied 30-145 per cent since December 1, 2016 — when talks of D-Mart’s proposed IPO surfaced. While the broader benchmark equity index S&P Sensex of the BSE has risen by 8.68 per cent since December 1, the BSE Mid-cap index has gained 9.3 percent during the same period.
“The magic of a market savvy promoter like Damani has got the entire retail sector re-rated,” said S P Tulsian, an independent equity advisor. “While Damani’s perception has definitely helped retail sector, there is a belief that brick-and-mortar policy still works for retail business. E-commerce has failed to make its market so far in the segment.”
D-Mart’s IPO may raise around Rs 1,800 crore and implies a valuation of 40 times the company’s expected financial year 2018 earnings. The company is being valued at around Rs 18,000 crore by its promoter, known for his stock picking skills for over two decades now. Damani was ranked 98 on India’s rich list by Forbes in 2015 and holds large stakes in a range of companies, including tobacco firm VST industriesBSE -1.52 % to India Cements.
In last four years, Avenue Supermarts recorded over 50 per cent growth in its net profit every year while its revenue rose by 40 per cent. The company’s return on equity and return on capital rose by 24 per cent. Market is agog with rumours that high net worth investors in Mumbai are mopping up D-Mart shares in grey market. This could ensue a buying frenzy when D-Mart lists as sellers in grey market may scramble to buy shares on bourses to give delivery.
Analysts, however, warn that the appetite for other retail shares could be short-lived.
“D-Mart’s grey market frenzy may attract investors to other listed players, but each are required to be analysed individually as not many have been successful in copying Damani’s business model,” said Mehraboon Irani, Principal & Head, Private Client Group, Nirmal Bang Securities.