Shares of Avenue Supermarts Ltd., parent of the D-Mart retail chain, have risen more than threefold since the company went public in March, making it India’s most valued retailer with a market capitalisation of Rs 58,500 crore.
The supermarket chain, 82.2 percent owned by investor-turned-entrepreneur Radhakishan Damani and his family, is yet to declare its quarterly earnings and has not offered any changed forecast. What’s driving the rally then?
Data suggests a demand-supply mismatch maybe one key reason.
Nearly 92.42 percent of the company’s 62.4 crore shares are locked in, according to data available on the Bombay Stock Exchange. Held by the promoters, pre-IPO investors and key management team members, these can’t be sold for up to a year after listing, according to listing norms of the Securities and Exchange Board of India. The locked-in shares include half of the 17.8 percent held by public shareholders.
This means only 4.72 crore shares were available as free float for trading, when the company went public on March 21.
Fund Houses On Buying Spree
But institutional investor appetite for Avenue Supermarts shares has continued to grow. Domestic funds held 3 percent stake at the end of March. Since the last filing, they have bought another 1.12 crore shares to raise their holding to over 5 percent, according to the data available on Bloomberg and monthly fact sheets of funds.
Free Float Shrinks
The fund purchases soaked up about a quarter of the free float and the 4.72 crore shares available in March now stand reduced to 3.60 crore shares.
Simply put, rising demand and limited supply has led to a surge in the company’s share price.