As the markets rediscover retail, Radhakishan Damani and Kishore Biyani reap the benefits
The Radhakishan Damani-owned DMart has a valuation of ₹69,000 crore as of mid-October
Image: Mexy Xavier
After a sustained lull, the retail sector has finally rediscovered a spring in its step. Investors are, once again, showing faith in what was considered a sunrise sector in the early 2000s, but had failed to sustain momentum. This time, having learnt from its past mistakes, the industry is perceived to be on a much firmer footing. And in for the longer haul.
What’s driving the gains?
First, consolidation: Rivals (Future Group and Bharti Retail) have merged or been bought out (Nilgiris by Future Group). Some like the RP-Sanjiv Goenka Group’s Spencer’s and the Aditya Birla Group’s More have scaled back expansion plans and shut down stores.
Second, per store profitability is now the name of the game. Scale at the cost of profitability is no longer an option. Retailers will now tell you that there is enough space for everyone and the first to expand is not necessarily the winner.
And lastly, retailers have gotten better at the science of retailing. Distribution centres and enterprise resource planning systems are de rigueur. As a result, their operations are far more efficient, leading to better bottomlines.
A significant trigger for the recent upswing in retail can be attributed to the March 2017 listing of Avenue Supermarts which operates the DMart brand of stores. Its efficient operations coupled with a low free float have given the Radhakishan Damani-owned retail operation a stratospheric valuation of ₹69,000 crore as of mid-October.
At the same time, the valuation of rival Future Retail has also grown as it reorganised businesses and showed healthy same-store sales growth. Still, analysts caution that valuations are running ahead of fundamentals. “While the valuations of the retail sector may have received a short-term bump with DMart’s listing, in the long term, it is the fundamentals of the business that will drive stock prices,” says Viraj Mehta, head and fund manager, Equirus Portfolio Management Services (PMS).
For the gains to continue, the challenges will have to be contended with. The threat from ecommerce looms. While it is still a nascent problem—with companies like BigBasket and Amazon losing money—there is every chance it could skew the business model of the sector and result in a nasty price and market share war.
Having learnt from its past mistakes, the retail industry is on a much firmer footing
(This story appears in the 29 December, 2017 issue of Forbes India. To visit our Archives, click here.)