Expect PAT CAGR of 41% over FY17-21
The size of India’s retail sector stands at $616 bn with share of organised brick and mortar retail at $55 bn (9%). While overall retail is expected to grow at a CAGR of 11.7% to $960 bn by 2020, organised brick and mortar retail is expected to grow at a faster CAGR of 20.2% to $115 bn (12%) thereby providing huge opportunity of growth for DMART. While food and grocery forms the largest share of organised brick and mortar retail in 2016 at 24%, penetration of food and grocery still stood at 3% in 2016 of total retail and is expected to improve to 5% by 2020 which should provide significant opportunity for DMART given it derives 53.6% of its revenues from food and grocery segment.
Growing its profitability without sacrificing on margins
Positioned as a value retailer, DMART’s overall revenue has grown at a CAGR of 40% and like-to-like revenue has grown higher than 20% in the last five years. Revenue per square foot has grown at a CAGR of 16% to Rs 29,019. Unlike most of its peers, DMART has been able to grow profitably without sacrificing on margins. It is typically an early mover in areas populated by lower-middle, middle and aspiring upper-middle income consumers. Given that Gujarat and Maharashtra, which contribute 80% to its revenue, contribute only 21% towards total retail spend in India, the growth potential for DMART is immense.
Peter Lynch cited Wal-Mart as an example of a tenbagger that investors had plenty of time to buy. He said that investors who had purchased Wal-Mart 10 years after it went public in 1970 would have still made 30 times their money.
There are similar articles online about berkshire – how people missed it trying to be price sensitive…
Local reference could be HDFC and GRUH… when HDFC Bank was listed in 1995, Damani was the biggest individual shareholder in the bank. And he kept accumulating more. When a prominent player in the market asked him why he was buying HDFC Bank stock when there were so many other options available at cheaper valuations, his reply was: you can’t stay on Peddar Road (one of Mumbai’s most expensive areas) at Dharavi’s (Mumbai’s biggest slum) rates.