Avenue Supermarts – Promoters Stake Sale

Promoters of Avenue Supermarts Planning to Cut Stake to Meet SEBI Rule

Introduction

Avenue Supermarts Promoters, Mr.Radhakishen Damani is planning to cut his stake from 80.21% to 75% to meet SEBI’s Minimum public shareholding rule for listed companies.

Avenue Supermarts Ltd | Promoter Stake Sale Plan

Avenue Supermarts is primarily engaged in the business of organized retail and operates supermarkets under the brand name of D-Mart.

Promoters Planning to Cut Stake to 75% by Feb 2020

• According to SEBI’s Minimum Public Shareholding (MPS) rule, promoters cannot own more than 75% in listed companies.
• Newly listed companies are given a three-year window to comply with the SEBI rule on minimum public shareholding. Avenues Supermarts listed on March 21, 2017.
• In accordance with the same, Avenue Supermarts has initiated preliminary discussions with merchant bankers for a stake sale by the promoters in early 2020.
• As shown in the above table, the promoters are need to cut the additional 5.21% stake. This 5.21% stake in Avenue Supermarts is valued at around Rs.6,300 Cr as per the company’s current total market capitalization of Rs.1.22 Lakh Cr.
• Investors have been bullish on the Avenues Supermarts stock in 2019 and it has risen by more than 25% in the last three months.

Which are the options for promoters additional stake sale?

• There are 2 options for Stake sale of Promoters additional stake of 5.21%.
  1. Offer for Sale (OFS)
  2. Qualified Institutional Placement (QIP)
• The company can even attempt a combination of the Offer for Sale and Qualified Institutional Placement routes which is now permissible according to SEBI norms.
• Many Institutional buyers such as mutual funds are very interested to include the stock in their portfolio on account of its great earnings potential and profitability growth in the long run.

Positive Impacts of Promoter Stake Sale on the Stock

There are many positive impacts of the Avenue Supermarts promoters stake sale on the company.

• The current free float market cap is going to increase with the stake cut by the promoters. As we have mentioned earlier, around Rs.6,300 Cr will be induced in the market cap of the company.
• So, accordingly Avenue Supermarts can make a possible entry into the Nifty as well as Sensex. As a result, it will open a golden gate for the company to get included in the ETFs and Other Index funds also.
• With the help of such good amount of liquidity induced into the company, it can also arrange for Capital expenditure for store expansion, penetration into more smaller cities. The store count of D’Mart is reached almost to 190.
• 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.
• So, by the sequential expansion and penetration, the company can attain a great sales and thereby earnings visibility in the future.