Avenue Supermart Ltd. (DMART) - "No-brainer" stock in retail sector

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          Everyone known about Rakesh Jhunjhunwala, one of the successful investor of India as well as Warren Buffet of India. But who was his guru?.... His guru was Radhakishan Damani. He had a vision that other investors should invest their money in his company. So he started a supermarket business under the name of DMART.
        
          DMART is a chain of supermarket in India founded by Radhakishan Damani in the year 2002. It is promoted by Avenue Supermart Ltd. It has more than 196 stores across 11 states in India. Dmart is known as WALMART of India.

BUSINESS STRATEGY:
  • Focus: They focus in giving discount to consumer. It means low price strategy.
  • Self-Owned Stores: They always buy their own property. They don't focus on rented property. This helps them in reducing cost of product.
  • Control Expense on marketing and shopping mall: You will never interact with big hoarding or digital marketing of Dmart. Their stores are based on low-interior-cost concept.
  • Cash Discount: Since their payment to supplier is very fast so they get a cash discount. And some portion of this discount is transfer to customer as a discounted rate.   
  • Trade Discount: They focus on bulk purchasing and bulk selling. So they get trade discount on purchasing huge quantity from a supplier.   
  • Slotting Fee: It is fee charged to supplier by Dmart in order to have their product placed on their shelves.. This fee help them in passing discount to customer.
  • Positioning Fee: Many supplier are charged to place their product on the eye level so that they get more sales. 
  • Regional Goods: Since India is diversified country, so Dmart believe in selling area-specific products.
  • Selling Self-Own Branded Products: They study about most selling product of their store and start manufacturing by themselves in order to get better pricing. Dmart Minimax, Dmart Premia, etc are some of the self own brands.        
        Above all strategies makes Dmart different from all other retail chain. Thus, it has been a successful business. 


FUNDAMENTAL ANALYSIS:

  • Topline / Sales growth: The revenue of the company is growing at the yearly rate of 33.68%. 
  • Bottomline / PAT (Profit after tax) growth: The PAT of the company is consistently growing at the yearly rate of 40.91%.
  • EBITDA (Earning before interest, tax, depreciation and amortization): It is growing at the rate of 23% Y-o-Y.
  • Debt to equity ratio: It is 0.13. It means company is virtually debt free. Interest payment are well covered by EBIT.
  • ROE (Return On equity): The average ROE of 5 years is 18.56%. It means management of the company is good as effectively using companies asset to create profit.
  • Current Ratio: It is 1.61 which means companies liquidity position is healthy.
  • P/E (Price to earning) & P/B (Price to book value ) ratio: Both these ratio are very high as compared to industrial P/E ratio and P/B ratio respectively. Thus, it is very expensive.
  • Promoter & FIIs holding: Current promoter holding is 74.99% which is consider to be best. FIIs holding are increasing from last 3 quarters. Mutual fund holding are also increasing. No pledging of shares by promoter.
  • Dividend: Company has never paid dividend to the shareholder in last 5 years.


MY PERSONAL VIEW:

          I would say Dmart is one of the blue chip company. worth to be invested in. I have invested 30% of my equity fund on it. Although it is overvalued but I think its price will boom in near future because of its excellent earning, great business model, good promoter and growing faster than their peers. 


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