The spectacular stock market rise of an Indian budget supermarket chain

Shop till you drop.
Shop till you drop.
Image: Reuters/Srdjan Zivulovic
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A Mumbai-based entrepreneur’s retail chain is having a dream run on the stock market.

Avenue Supermarts, which was started by stock market veteran Radhakishan Damani and which runs the popular D-Mart chain of supermarkets, crossed Rs1 lakh crore ($15.1 billion) in market capitalisation for the first time on June 11 on BSE. This puts the retailer in the same league as Mahindra & Mahindra, Reliance Industries, and TCS, among others, which have previously breached that mark.

A year after its stock market debut, the retail chain, which opened its first store in 2002 in Mumbai, has been able to sustain the investors’ euphoria with healthy profits. For the financial year 2018, its revenue was up 26% at Rs15,009 crore; profits grew by a massive 62.6% to Rs785 crore.

While high rents and low margins make grocery retail difficult, D-Mart is one of the few supermarket chains that’s been profitable. “There are very few domestic retailers that have cracked the food and grocery model in India, which is giving investors the confidence,” said an analyst on the condition of anonymity, justifying D-Mart’s high valuations.

In fact, last year, Avenue Supermarts became one of the world’s most expensive retail stocks, reflecting the street’s confidence in the chain that runs over 150 outlets across India.

The retailer’s focus on competitive pricing gives it an edge. At its stores, typically located in densely populated areas, the company sells goods of daily use, vegetables, households items, apparel etc to middle-income consumers. The trick is to keep procurement and operation costs low (pdf) and to avoid deep discounts.

Last year, Goldman Sachs said the company would benefit from the Indian consumers’ shift towards organised retail. However, it did list intense competition from online grocery retailers as a looming threat, a concern shared by others like the Citi Group, too.

Becoming D-Mart

Avenue Supermarts was launched by ace investor Damani in 2002. In the 1980s, after his father passed away, leaving behind a ball-bearings business, the 32-year-old decided to dabble in blue-chip stocks. Damani made a name for himself in the share market by investing in companies such as men’s grooming brand Gillette, tobacco maker VTS, and technology company 3M. After spending two successful decades in the market and mentoring well-known equity investor Rakesh Jhunjhunwala, Damani launched D-Mart.

“I liked the consumer business and I invested in such stocks, too,” Damani told The Economic Times newspaper in 2014. “So, there was this strong affinity to start something in the same sector.”

The recent rally in D-Mart’s stock price should reinforce his faith.