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DMart Case Study - Group 06

The document discusses DMart, an Indian retailer known for its low-cost business model. It analyzes DMart's financial performance and competitive advantages in India's growing retail market. Some key points: - Organized retail in India is expected to grow significantly by 2026, benefiting DMart. - DMart's low-cost model, focus on high-volume products, and fast payments to manufacturers have made it very profitable. - Metrics like sales per square foot and margins are better than competitors, demonstrating DMart's strong competitive position in the industry. - A discounted cash flow analysis of DMart from 2016-2019 estimated its current stock price is justified based on future growth expectations

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Siddhi Gode
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883 views

DMart Case Study - Group 06

The document discusses DMart, an Indian retailer known for its low-cost business model. It analyzes DMart's financial performance and competitive advantages in India's growing retail market. Some key points: - Organized retail in India is expected to grow significantly by 2026, benefiting DMart. - DMart's low-cost model, focus on high-volume products, and fast payments to manufacturers have made it very profitable. - Metrics like sales per square foot and margins are better than competitors, demonstrating DMart's strong competitive position in the industry. - A discounted cash flow analysis of DMart from 2016-2019 estimated its current stock price is justified based on future growth expectations

Uploaded by

Siddhi Gode
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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DMART: AN ACE IN INDIA’S RETAIL SPACE

by

GROUP-6

Ans1.

Yes, the future growth potential of organized retail in India will benefit DMart as

 By 2026, It is expected that organized retails can grow to 25% and its shares by 26 %,
and the valuation of the Indian sector is expected to grow to $1.75 Trillion.

 In India, the organized retail market is growing at a CAGR of 20-25 % per year, which
indicates good future growth potential for upcoming years.

 There is more chance for investors to get high returns in a short span since the company’s
shares had given 60% compound growth over 3 years.

 Since 80% of the store is self-owned, it made DMart a low or no debt company making it
financially strong, and also no rental costs result in a high positive cash flow, which can
be further used for expansion.

 Margins are higher than from other global players. The company’s earnings before
interest tax Depreciation & amortization (EBITDA) margin at 9% which is better than
retails giants.

Ans2.

 D-mart sells FMCG products which include food, daily consumable products, and
clothing. the business is B2C (i.e. business to consumer), meaning manufactured goods
are sold directly to the customers.
 They are involved in selling daily selling products that have demand throughout the year.
 They have a less expensive business model and they achieved it by spending less on
operations, which is due to more products in less space, the fewer bill counters.
 D-mart makes the payments to manufacturers fast which gets them added discounts in the
purchase of goods.
 Prices of the products are thus low therefore more customers are attracted and high sales
are achieved.
 D-mart also sells area-specific goods as they sensed the variations in products purchased
in different parts of the country.
 They have managed to remove middlemen hence they can sell goods at a lower price.
 Low priced products with good quality and discounts make buyers buy more products.

Ans3.

DMart has a competitive advantage over other players in the market. Some points from the case
that showcases the truthfulness of the statement are:

 DMart has average sales/square feet of 35647 which is better than its counterparts like
Big Bazaar’s (14514) and Reliance Retail’s (grocery sales of 25751) for FY 2019.
 The company’s EBITDA margin is at 9% which is better than Walmart’s (5.6%) and
Tesco’s (2.3%) which are international players in the Retail space. It is also better in
comparison to domestic competitors, Spencer’s (0.08%), and Future Retail (4.5%).
 Same-store-sales growth (SSSG) of DMart is 14.2% in FY18 which is more than its
competitors Future Retail’s Big Bazaar and Trent’s Star Bazaar, who clocked 13.4% and
8.1% SSSG growth respectively.
 DMart’s share is traded at 2492 which is 125 times of earnings whereas for others it is at
25- 50 times.
 Payable days and Inventory days are DMart are 8 and 29 whereas for other retail stores it
is much higher (Exhibit 6).
 The Inventory Turnover Ratio for DMart is 14.8 whereas for Walmart it is 10.8 (Exhibit
7).

Also, Exhibit 2 shows that DMart is performing better than its competitors for Sales, operation
profit margin, net profit margin.

Operating profit
Company Sales (million) Net profit (million) Net profit margin
margin
DMart 200045.2 8.4% 9363.5 4.70%
Spencer Retail 12885 7.18% 125 4.33%
Future Retail 201649 4.64% 7328.1 3.63%
V-Mart Retail 14337 7.34% 616.3 4.30%
Ans4.

Discounted cash flow: -

Free cash flow (FCF) of 2016 = - 201.51 Cr

Free cash flow (FCF) of 2017 = - 180.10 Cr

Free cash flow (FCF) of 2018 = - 178.76 Cr

Free cash flow (FCF) of 2019 = - 601.52 Cr

Average of four years free cash flow = -290.47

Perpetual growth rate of Dmart (PGR) = 7%

Discount rate (DR) = 5.21%

NPV = -19.32

The price of Dmart Stock by feb 2020 = Rs 2544

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