This reminds me of the INOX IPO, with lot of similarities, which was also managed by a lot including Edelweiss Financial Services
I am surprised how fast people forget things
Net proceeds from D-Mart IPO will be used towards
1080Cr
- repayment or prepayment of a portion of loans
- Redemption or earlier redemption of Non-Convertible Debentures (NCDs)
366 Cr for
- Construction and purchase of fit outs for new stores
350 Cr
- General corporate purposes.
Good part = There is no OFS, and everything goes to the entity
Bad Part = the existing common stock is overpriced
My sniffing nose
1. This dude, Damani want to sell equity, but never sold even part of the equity before this. That too, when this guy was well entrenched in financial world. Am I missing something here??
2. Presence only in Gujarat / Maharashtra – Though good for focus but show me the potential for growth of same model outside these states as these states are already saturated.
3. Cluster approach – Good for initial part, but will be really hard to replicate, where will the growth come from
4. Never closed any outlet due to lack of profitability – Are you crazy? Are you really running business successfully? I seriously want to see the store wise numbers.
5. Location+Infra – Densely populated area + Ownership / long term lease. There lies the problem, how are they amortizing costs, accounting of the cost of acquisition of real estate. I have to read between the lines of those depreciation / amortization numbers
More than 90% of their stores are owned and less than 10% leased
Their sales per sq ft is
Dmart =22
Reliance = 15k
Future = 7.5
The analyst are going crazy about this, but wait, they perhaps don't know the predominant formats of these companies
Dmart stores are very small, compared to even Reliance
Point is they are paying higher CAPEX also, which analysts are perhaps ignoring
Lets look the numbers
Consolidated financial performance (in INR crore)
|
|
FY2012
|
FY2013
|
FY2014
|
FY2015
|
FY2016
|
Total revenue
|
2,222.4
|
3,355.1
|
4,702.3
|
6,457.7
|
8,606.1
|
Total expenses
|
2,134.0
|
3,214.2
|
4,457.4
|
6,134.3
|
8,113.9
|
Profit after tax
|
60.4
|
93.9
|
161.4
|
211.7
|
321.2
|
Profit margin (%)
|
2.7
|
2.8
|
3.4
|
3.3
|
3.7
|
Revenue = 2200 in 2012
8600 in 2016
That implies = 400% in 4 year, crazy,
That too on a model when they claim - “Location+Infra – Densely populated area + Ownership / long term lease”
It seems there is something wrong here, only one of them can be correct, either the revenue or the model
Adding to this, profit of 321 cr on 8600, I have done retail before, expressdwarka.com and it was literally asset free retail,
I can tell on face of it, 321/8600, seems like a blatant lie with 4% net margin on “Ownership Model”
(based on my experience of running the asset like expressdwarka, achieving even 3% is challenging)
Even if we trust the numbers, the PE is not justified with ROE of 20% in last 3 years
Priced at pe of 52.6 will take 1800 cr
FY 2016 , EPS = 5.7
Future Retail
PE = 30
Mar ' 16
|
Mar ' 15
|
Mar ' 14
|
Jun ' 11
|
Jun ' 10
|
Per share ratios
|
Adjusted EPS (Rs)
|
0.27
|
-0.63
|
-1.20
|
3.53
|
6.01
|
Adjusted cash EPS (Rs)
|
13.05
|
11.74
|
16.26
|
10.27
|
13.86
|
Reported EPS (Rs)
|
0.27
|
1.79
|
0.12
|
3.53
|
8.71
|
|
|
|
|
|
|
With a share price of 254, the current EPS, has increased due to payouts (which management manages) in last year. I strongly believe even Future Retail is overvalued,
Conclusion
I have nothing against the business model and it sounds like a good company. But I have deep apprehensions about the numbers. Somehow the operating model and numbers are not matching
Buy / Sell - May be buy till 500-800, hold till 1000-1200, and then sell
Update
Last time, I was whining about the share price of INR 1000 for this company. This company crossed INR 1200 today. I have my fingers still crossed.
Update
This stock crossed 1500, what is this ? Are people crazy to give this valuation ?
