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According to Forbes’s latest Richest Indian list, RK Damani is the 4th richest person in India, with a net worth of over $16.5 Billion, which is equivalent to over Rs 123,117 Crores.

RK Damani Success Story

RK Damani does not consider himself a highly educated person. He dropped out of college while pursuing B Com from the University of Mumbai. Before entering the stock market, RK Damani had a small ‘ball-bearing business. However, after the death of his father, he started working as a stockbroker in his family business. He was 32 at that time.

Therefore, unlike most tech entrepreneurs who start their startup journey in their 20s, RK Damani was a little late to join this journey but still was able to make it big.

— Stock Market Career

Although RK Damani started his career as a stockbroker, he soon understood that if he wants to make real money from the market, then he needed to trade his own money in the market, instead of being just a broker. And soon he started trading in the Indian stock market.

RK Damani made a lot of profits from his trading in stocks. He was a very flexible trader and believed in making profits using different market swings. For example, during the Harshad Mehta scam, he made a lot of money by ‘Short-selling’ the stocks, which was not common at that time.

However, after getting influenced by value investor Chandrakant Sampat, later RK Damini changed his approach. He shifted to long-term value investing.

RK Damani made a lot of money by investing and holding multi-baggers stocks. A few best-performing stocks from his portfolio are VST Industries, Sundaram Finance, Indian Cement, and Blue Dart. He also invested in VST Industries at an average of Rs 85 and it is currently trading at Rs 3,466. Further, India cement gave a return of +115% to his portfolio.

Some other companies in RK Damani’s portfolio are Food & Inns Ltd, Simplex Infrastructure Ltd, Mangalam Organics, Spencer’s Retail, BF Utilities, Prozone Inty Properties, Kava Ltd, Astra Microwave products, etc.

— D’Mart Owner – The career as a Businessman

RK Damani has been very interested in consumer retails for a long time. That’s why he opened D-mart in 2002 with one store in suburban Mumbai. Nevertheless, being a value investor, this was a very planned move by him.

In March 2017, D-Mart went public by offering its IPO, under the name of the parent company- ‘Avenue Supermarts’. The IPO was a big hit. Avenue supermart offered its shares to the public at a  price of Rs 299 and got listed at Rs 604 after over-subscription. Currently, the shares of Avenue Supermarts are trading at Rs 4,250 per share, as of 06 October 2021.

Further, by 2021, D-Mart has over 234 stores spread across Maharashtra, Andhra Pradesh, Telangana, Gujarat, Madhya Pradesh, Chhattisgarh, Rajasthan, National Capital Region, Tamil Nadu, Karnataka, Daman and Diu, and Punjab. Dmart stores generated total revenue of Rs 23,787 Crores in the year ending March 2021.

Opportunities for Organised Retail Sector & Avenue Supermarts

Introduction

Avenue Supermarts is primarily engaged in the business of organized retail and operates supermarkets under the brand name of D-Mart. D-Mart seeks to be a one-stop shopping destination for the entire family, meeting all their daily household needs. Let us also explore the is future opportunities the organized retail sector possesses.

Avenue Supermarts Ltd – Stock Analysis

Retail Sector Overview

• Indian Retail sector has emerged as one of the most dynamic and fast-growing sectors due to the entry of several new players in recent times along with rising income levels, growing aspirations, favorable demographics, and easy credit availability.
• Globally, India is the fourth-largest global destination in the retail space after the US, China, and Japan.
• The current Valuation of the Indian Retail sector is close to $1 Trillion ie. Rs.70 Lakh Crore in FY2019-20. And as per the estimations provided by the Ministry of Commerce, the retail sector would be around $1.1 Trillion by 2021.

Indian Retail Sector – Market Share

1. Unorganized Retail: Currently, the Indian retail market continues to be dominated by unorganized retail (traditional Kirana stores) accounting for about 88% of the total retail market.
2. Organized Retail: On the other hand, organized retail-like Big Bazaar, DMart, Walmart, Malls, Showrooms, etc, is contributing only about 9% of the total retail market.
3. Online Retail: Online retail players like Flipkart, Amazon, Big Basket, etc, accounts for only 3% of the total retail market in India.

• As per the growth projections done by the Ministry of Commerce, the Organised retail market share is expected to rise to 18% in the coming 2 years ie. by 2021.
• Private consumption expenditure is expected to grow at the rate of 10-11% YoY by 2021. So, the size of the Indian retail sector would be $1.1 Trillion by 2021. And out of this $1.1 Trillion, 18% of the market share would be contributed from organized retail.
• It means, that 18% of $1.1 Trillion = $198 Billion corresponds to the total organized retail players. And here Avenue Supermarts is a big player in the organized retail segment.

Avenue Supermarts Ltd – Q2 FY2019-20 Results Update

D-Mart’s Store Count

D-Mart has shored up its store addition by adding 13 stores (8 in Q1 FY20 + 5 in Q2 FY20) of (0.6 mn sq.ft. addition) in the first half of FY2019-20 (vs. 5 stores in H1:FY19 and 21 stores in FY19). Thus, the total store count is 189 stores spread across 6.5 mn sq.ft.

Future Earnings Visibility Outlook

• The Trailing 12 months revenue from these 189 stores is around $3 Billion.
• As per current numbers, the size of the total retail sector is $1 Trillion, and a 9% share is in organized retail. Means 9% of $1 Trillion= $90 Billion. And out of this $90 Billion, just $3 Billion is currently contributed by Avenue Supermarts. It indicates how big an opportunity is present for the company’s future growth.
• The market share projections of organized retail market are:
  • 2021: 18%
  • 2025: 30%
  • 2030: 40%
• The entire retail sector is expected to grow close to $2.2 Trillion in the next 10 years. And out of this $2.2 Trillion valuation, 40% will go to the organized retail share. It means the Organised retail market would be 40% of $2.2 Trillion = $880 Billion.
• Avenue Supermarts is expected to grow with a very high CAGR from the current market contribution of $3 Billion to contribute to this $880 Billion market size by 2030. This also shows how big is the opportunity presented for Avenue Supermarts and the other organized retail players in the coming 10 years to grow.
• Currently, Avenue Supermarts is tackling only the Tier-1 and Tier-2 cities. And according to its market study, the company may enter the online retail business also in near future.
• Also, with the help of efficient supply chain management strategies employed, Avenue Supermarts is planning to open Mini D-Mart stores like small Kirana stores to improve their presence and penetrate the unrealized market also.

We can get a clear idea of the earnings visibility of the company from the above projections and calculations.

Advantage of Need-based Consumption Business Model to Sustain Growth Trajectory

• The retail sector is basically a need-based sector. If any business is dependent on need-based consumption, then the economic slowdown won’t affect much the earnings growth of that business. So, in this case, such a business won’t find it much more difficult to achieve a steady growth graph (economic growth + inflation growth).
• And due to this kind of strong earnings visibility, these stocks like Avenue Supermarts, and Reliance Industries (due to Reliance Jio + reliance on Retail) are trading at a premium valuation.
• These stocks are having a great advantage of a need-based consumption business model to sustain a growth trajectory.

Avenue Supermarts – Q2 FY2019-20 Results

• D-Mart reported strong revenue growth of 22% YoY to Rs.5,949, driven by a healthy store addition pace in Q2 FY20. While the net profit increased by 47.34% YoY to Rs.333 Cr. Lower tax rates (22% vs 36%) boosted the PAT growth in spite of lower PBT in Q2 FY20.
• As per the management, revenue growth was slightly below its expectations. But, owing to a favorable product mix, gross margins improved.
• Higher operating expenses restricted profitability, due to which operating profit margin % has reduced to 8.7% in Q2 FY20 from 10% in last quarter Q1 FY20.
• The stock price has appreciated around 13% since the announcement of the recent corporate tax rate cut as the benefit of higher free cash flows probably can be passed on through price cuts to consumers
  to boost revenue growth.

Conclusion

• With the expansion in the market share of organized retail, the Indian Retail sector will achieve the estimated projections in the next 2-3 years.
• Improving the economy, changing demographic profile, increasing disposable incomes in hands of the middle class, brand awareness, and growing urbanization along with rising discretionary spending are the main growth drivers in the organized retail market in India.

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