Avenue Supermarts promoters plan to trim stake by February 2020 to meet Sebi rule

Avenue Supermarts, which operates pan India supermarket chain DMart, has initiated preliminary discussions with merchant bankers for a stake sale by the promoters in early 2020, sources with knowledge of the matter told Moneycontrol.

The promoters, led by veteran stock market investor Radhakishen Damani, hold 80.21 percent stake in the company. SEBI's minimum public shareholding (MPS) rule for listed companies stipulates that promoters cannot own more than 75 percent and that public shareholders should own a minimum 25 percent.

“This will be a big share sale in excess of Rs 6000 crores as per the current m-cap," said one of the sources.

"The company has met multiple merchant bankers recently for the same and is expected to shortlist them in the next two weeks,” the source said.

Newly listed companies are given a three-year window to comply with the SEBI rule on minimum public shareholding. Avenues Supermarts listed on the bourses on March 21, 2017.

A 5.21 percent stake in Avenue Supermarts is valued at Rs 6,388 crores as per the company’s current total m-cap of Rs 1,22,626 crores. Investors have been bullish on the Avenues Supermarts stock in 2019 and it has risen by more than 25 percent in the last three months.

“The mechanism hasn’t been finalized as yet but the company could either opt for the OFS ( offer for sale) route or maybe even attempt a combination of the OFS and QIP (qualified institutional placement) routes which is now permissible. That way, it can adhere to Sebi norms and also arrange for Capex for store expansion, penetration into more smaller cities. As of now, the plan is to conduct roadshows in January and launch the share sale before mid-February 2020,” added another source.

From the launch of its first store in Powai, Mumbai in 2002, DMart today operates a retail business area of 5.9 mn square feet and has 176 stores across 11 states and 1 union territory, according to its 2018 annual report. In FY 18-19, Avenue Supermarts registered revenues of Rs 19,916 crores and a profit of Rs 936 crores.

The supermarket chain which operates on a low-cost model is present in 3 segments, namely, foods, non-foods and general merchandise and apparel, with half of the revenues coming from the first segment. It counts Trent, Future Retail, V-Mart Retail, Arvind Fashions and Spencers Retail as its listed peers. Avenue Supermarts declined to comment in response to a query from Moneycontrol.

MoneyControl