Avenue Supermarts Limited - IPO Note - Sushil Finance

Avenue Supermarts Limited (ASL) is Mumbai based supermarket chain incorporated in 2002. It operates and manages all its stores which operate under the D-Mart brand and offers a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories.

The company operates predominantly on an ownership model (including long-term lease arrangements, where lease period is more than 30 years and the building is owned by Avenue Supermarts rather than on a rental model.

As of January 2017, ASL had 118 stores. As of January 31, 2017, IT had 22 distribution centres and 6 packing centres in Maharashtra, Gujarat, Telangana and Karnataka which form the backbone of the supply chain to support it's retail store network.

HIGHLIGHTS

- The company plans to deepen its store network in southern and western India and gradually expand the network in other parts of India pursuant to its clusterfocused expansion strategy.

- Value retailing to a well-defined target consumer base.
- Steady footprint expansion using a distinct store acquisition strategy and ownership model.
- High operating efficiency and lean cost structures through stringent inventory management using IT systems.
- Strong track record of growth and profitability.
- Enhancing sales volumes by continuing to priorities customer satisfaction.

Objects of the issue

1. Repayment or prepayment of a portion of loans and redemption or earlier redemption of NCDs availed by the Company (Rs. 1,080 Cr.);

2. Construction and purchase of fit outs for new stores (Rs. 366.60 Cr.);

3. General corporate purposes.

OUR VIEW

Company has ability to offer customers value-retailing and daily low prices and consequently greater daily savings. It opens new stores using a cluster approach on the basis of adjacencies and focusing on an efficient supply chain, targeting denselypopulated residential areas with a majority of lower-middle, middle and aspiring upper-middle class consumers.

Revenue grew at 40% CAGR in last 5 years and profit margin of 3.7% which is considered good in FMCG companies. Considering offer price of Rs. 299 and EPS of 5.67 the P/E comes to 52.73. However, with the business growing at 20% and bottom-line growing at 30-40% we believe this issue is fairly priced factoring future growth. We recommend investors to invest in the issue.

Source : Equity Bulls

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