Many people have a view on the D’Mart IPO and keep comparing it to the Reliance Power IPO! Their concern is the premium that the grey market is currently showing for the Rs. 300 IPO.

Well D’mart is different:

• it is run by a value investor
• RKD knows what it is to create wealth for himself and has done it in the markets
• The IPO is small – it is just Rs. 1800 crores
• The number of friends of RKD who can write cheks for Rs. 180 crores is MUCH more than 10!!
• The valuation is high, it is backed by cash flow not just a pipe dream
• The competitors are similarly valued – or valued higher
• Remember in case of Reliance Power – Tata Power and NTPC were available cheaper
• Reliance Power was a money raising exercise
• D’Mart IPO is a market making exercise
• Most of the original shareholders may stick around a little longer and dilution will be slow
• There will be no huge selling pressure because the issue is likely to be oversubscribed at least 50 times if not 100
• None of RKD’s friends will be in a hurry to sell
• Most of the shareholders who get the shares will hold on for some time
• I like the business model where the
• Only the stags expecting an immediate gain on listing will sell
• there will be enough appetite for the listed share also if it lists around say 325.

Risks:

• I will not pay a premium of 50 pe for a market where the winner takes all
• Amazon is a horrible competitor to fight against in any business
• D’Mart’s ability to attract and keep good top class talent is doubtful
• When the market goes down, the PE of this share could go down
• I expect to get 10% of the amount invested..to me it is not worth the trouble

It is surely not cheap if you consider a price of Rs. 320+ Rs. 180 premium. We are talking of a PE of 66? Its too high. However the owner of this share owning the vast majority of the share ENSURES that Value Destruction will not happen.