D-Mart operator, Avenue Supermart has witnessed a spectacular listing on Tuesday with more than 110% gain. The IPO of the company came with a price band of Rs 299.
D-Mart’s IPO had hit D-Street earlier in the month to raise Rs 1870 crore, which got subscribed a staggering 104.48 times at the end of the three-day bidding process.
It is clear that the issue was underpriced and it was a goodwill gesture on the part of the company to price the issue lower and the market has rewarded it generously.
There are a lot of questions in the investors’ minds that what should they do at such a high price.
Here we try to respond it in an unbiased manner:
- Those who have been allotted Avenue Supermarts’ shares can book profit if you are short term investors.
Though the valuation of the company at current market price is quite stretched.
Its PE is trading at 29x against most of the peers having PE of 15x, at their current market price.
- For the investors who have not got the allotment they can wait for better pricing for an entry. As per the pace at which the company is growing, its share price is fairly valued at Rs 450 to Rs 500.
- If you are long term investors you should not book profit in Avenue Supermarts as company is showing fair growth.
The debt of the company will become negligible in upcoming quarters. It has a unique business model which stands out from the peers.
After whooping return of more than 110%, Avenue Supermart on its listing day is trading at premium valuation of 110.1x P/E of FY16 EPS, whereas its peers Future Retail Ltd.
What effect will D-Mart's IPO listing have on market?
is trading at 76.2x P/E of FY16 EPS.
On the other hand, Avenue has one of the best inventory management (holding just 26 sale days’ inventory as against 80-100 days for Future Retail).
It’s also worth remembering that D-Mart’s quarterly financial results history and the impact of seasonality, if any, is not known to the Street yet.
Those factors are worth watching for the stock along with other factors such as same store sales growth.
And finally, with valuations so high, there is hardly any room for error on any of these counts.
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