Smart ways to invest and attain early financial freedom

Mar

8

2017

Here is an IPO that represents a solid company – I am a customer of DMart and I love the prices that it offers (and hate the crowds at times – but then we go on weekdays daytime). In my MBA classes – I take the example of DMart in my strategy classes to show how one can be smart and make money in an industry that has very low profitability. Then there is the founder – Mr Ramesh Damani – he has built such a solid reputation of a nice soft spoken savvy/value investor that it is hard not to like him and respect him and be a partner to him in this company. And this IPO is surely a block buster IPO in the sense that it would be over-subscribed many-many times –after all which analyst will say things against Mr Ramesh Damani’s offerings.

All the parameters look good too- here are some:

EBIT margin of 6.6% as compared to 1% for Future Group (Big bazar)

ROE of 21% as compared to 0.8% for Future Group

Inventory turnover of 9.1% as compared to 1.5% for Future Group

The company looks well managed in all respects.

But that is only one part of the evaluation.

The second part is the price. At what price is it a good buy and is the IPO priced at that range.

The IPO is priced at a PE of 39-40 based on 2017 earnings estimates. The company is also growing at around 50% per annum and so the PEG of 0.8 does look to be reasonable and so the pricing seems reasonably close what the market would price it at.

However, in an IPO sale process – there is one man selling his shares and there are thousands wanting to buy the shares. Logically, when there is one seller and many buyers, you should not be a buyer -the dice is loaded against you. I normally do not apply for any IPO due to this reasoning.But I am breaking my own rules here and applying for it.

Having said that, the over subscription could be so high that there may be hardly any shares allotted. So once the dust settles (after a few months), I may buy more of this company at prices that are more market determined. But for the time being, I am going to be testing my allotment luck.

Author Description

S. G. Raja Sekharan

S. G. Raja Sekharan is a visiting MBA faculty, a mentor to budding entreprenuers, a wealth management consultant, an author of a book on Investing in India and the author of this blog.

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