Some D-Mart IPO investors will make money only if it lists at 50% premium
By Sanam Mirchandani, ET Bureau | Updated: 20 Mar, 2017, 1215 hrs IST

The company had earmarked 15% of the total issue size of 6.25 crore shares for HNI''s, who had borrowed funds amounting to Rs 55,000 crore to bid for the shares at an interest rate of 7-10%.
Mumbai: For high net-worth individuals, who borrowed heavily to invest in the recent initial public offering of supermarket chain D-Mart''s parent Avenue Supermarts, the stock has to list at Rs 450 or at least 50% premium over the issue price of Rs 299 per share if they have to make listing gains.
According to brokers, grey market prices are pointing to a strong listing of Rs 550 per share for Avenue, considered more profitable than most of its peers in the Indian retail sector.
The Rs 1,870-crore issue that hit the primary market between March 8 and March 10, got subscribed 105.93 times, making it the second biggest Rs 1,000 crore-plus IPO in Indian capital markets on the basis of subscription after Adani Ports in 2007. The HNI portion was subscribed 277.74 times, while retail and qualified institu tional buyer''s segment got sub scribed 7.25 and 144.62 times.

The company had earmarked 15% of the total issue size of 6.25 crore shares for HNI''s, who had borrowed funds amounting to Rs 55,000 crore to bid for the shares at an interest rate of 7-10%.
“For HNIs the costing comes up to about Rs 150. They will make good money if the stock lists around Rs 500-550,“ said Geetanjali Kedia, senior research analyst at advisory firm SPTulsian.com.
 Analysts said the company''s value-retailing model along with focus on owing stores than leasing give it an edge over industry peers, making it the country''s most profitable retail chain.This led to investors bidding aggressively to the offer, analysts said. The strong parentage of famed investor Radhakishan Damani was also an attractive point, they added.
There is scepticism too that a strong listing will leave little room to go up further and the stock will eventually come off highs. Based on earnings in the nine months ended December, the stock is at a price-to-earnings ratio of 36 times. However, others argue that given the frenzy surrounding the IPO, those who did not get allotment in the IPO, particularly retail investors will utilise any fall in the stock price to buy.
“Those who have rushed in for quick money, those who have borrowed funds will sell but those who have missed the opportunity will buy on every dips because the business model is good,“ said Nilesh Dedhia, director at Vidhi Wealth Management Services.
Kush Katakia, CEO at Beanstalk Advisory said the stock may appear pricey if it lists at around Rs 525-550 but it is unlikely to fall below Rs 500 due to high appetite for D-Mart''s profitable business model.
In the April-December period, the company reported net profit of Rs 387.47 crore on a revenue of Rs 8,803 crore, while operating profit margins and net margin stood at 8.8% and 4.4% respectively.
“There is a lot of appetite for the stock because D-Mart stands out in the retail space in terms of margin premium. The net margin of D-Mart is around 4.4% versus 2.2% for Future Retail,“ said Kedia. “I see Rs 450 as the fair value for the stock beyond which it will be all frenzy taking the stock higher.“
The issue comprised entirely of fresh issue of shares. The promoter holding will come down to about 82% post the issue against 91.34% held earlier.
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