|Equity Billionaires||Equity wealth||Source of Wealth||Wealth Action since Jan-2020|
|Mukesh Ambani||$36.8 billion||Reliance Industries||-19.19%|
|R K Damani||$13.8 billion||Avenue Supermarts||+30.82%|
|Shiv Nadar||$11.9 billion||HCL Technologies||-17.99%|
|Uday Kotak||$10.4 billion||Kotak Bank||-23.96%|
|Gautam Adani||$8.9 billion||Adani Ports SEZ||-33.29%|
|Sunil Mittal||$8.8 billion||Bharti Airtel||+7.81%|
The big story of the March quarter in terms of wealth creation was Avenue Supermarts and its promoter Radhakishan Damani. The stock managed to buck the trend and gave positive returns during this period. With most of his wealth coming from his stake in Avenue Supermarts (D-Mart brand), Damani saw his wealth grow by 30.82% in the difficult Jan-Mar period. The story of wealth creation is entirely the story of how one company managed to buck the trend and create wealth despite the carnage.
D-Mart story – An Eight-bagger in 3 years
In our obsession with short-term performance, it is normal to forget the long term performance of the stock. Avenue Supermarts came out with its IPO in March 2017 at a price of Rs299. For an investor allotted shares in the IPO, the stock is an eight-bagger; translating into compounded annual returns of 101%. Even if you assume that you bought at the listing price of Rs600, you would still have a four-bagger with compounded annual returns of 59%. To put things in perspective, look at a comparison of two much talked about retail stories in India; Future group and Avenue Supermarts.
It actually happened in India
Back in 2007, the Future group was firing on all cylinders and emerging as India’s answer to Wal-Mart. Kishor Biyani captured the journey of the Future group in his book, “It Happened in India”, based on the original book by Sam Walton. At that time, D-Mart was a non-descript value-for-money outlet that was focusing on residential localities. Over the last 10 years, the Future group has lost over 80% of its value due to a combination of huge debt and spiralling costs. During the same period, D-Mart has grown its revenues, profits and market value to emerge as the largest and most valuable retailer. Here is how the D-Mart story happened in India.
- Stayed glued to its focus areas of food and groceries and avoided any form of ambitious diversification
- Focused on inventory turnover and quick shelf turnaround. Hence, D-Mart could negotiate hard with vendors
- Avoiding private labels and top end products saved on shelf space cost. That means higher profit per square feet in retail business
- Sticking to opening 75% of new stores in existing active geographies. This enabled client penetration.
- Store ownership has been a theme of the company. This avoids the high rental costs and solvency risk.
If we go back to our promoter wealth creation table, the 30% wealth creation by D-Mart happened during the COVID-19 pandemic. The stock did correct as you can see in the chart below but managed a V-shaped recovery in the midst of the COVID-19 pandemic.
To be fair, COVID-19 has badly disrupted supply chains and that is having an impact on D-Mart too. The company has admitted that most of their stores are operating at 40-50% of the capacity. But clearly, 4 things appear to be working in favour of D-Mart.
- D-Mart has been able to manage the logistics better than other retailers and secure better terms and commitments from wholesalers in these difficult times. That gives them a marginal edge.
- Unlike other retailers, D-Mart does not have a presence in large malls anywhere in India. Hence the complete lockdown has not hit their outlets.
- Since most of the stores are owned, rental costs are not piling up. Also, the company has managed to defray a large part of the debt post its IPO.
- Finally, retail stories thrive on future demand and here D-Mart scores. Investors see D-Mart as the best bet to ride out the storm and capitalize when demand returns.