The Run and

Return Machines
While Dmart mirrors the master blaster 14TH
FEBRUARY
on the bourse, IRCTC shows king Kohli’s aggression
2020

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The Run and Return Machines

Every street in all cities, towns, and villages of India has its galli cricket team. All of them have their
own Sachin, Virat, Mahi, Bhajji, Yuvi, and likes. Similarly, the D-street also has stocks that give
powerful returns like Dhoni, consistent returns like Virat, bluechips like Sachin, and some volatile
stocks with a glamour quotient like Pandya.

In the current market cycle, we have two leading stocks that are rocking the D-street:

• One company started the journey from Hiranandani Gardens in Mumbai’s Powai under the
mentorship of Radhakishan Damani. It is like the legendary cricketer coming from the Sivaji Park
in Mumbai, trained by Ramakant Achrekar.
• The second stock, which is the only one of its kind in the market, came whistling and chugging
from New Delhi’s Rail Bhavan. It is like an aggressive and audacious player coming from the
West Delhi Cricket Academy.

Avenue Supermart (Dmart)

Avenue Supermarts operates Dmart retail stores, which sells food, grocery, utensils, bags, apparel,
personal care, and miscellaneous home items under different brands in India. The company posi-
tions itself as a discount store attracting customers looking for non-premium items at everyday
low prices. As of December 2019, Dmart operated 196 stores with aggregate space of 7M sq ft
across the country.

Sachin Tendulkar and Dmart

Sachin’s batting is based on complete balance and poise while limiting unnecessary movements
and flourishes. He is known for his unique punch style of hitting the ball over the square. He is also
renowned for his picture-perfect straight drive, often completed with no follow-through. In 2008, 
Sunil Gavaskar remarked that "it is hard to imagine any player in the history of the game who
combines classical technique with raw aggression like the little champion does."

This style and technique have put Sachin ahead of many cricketers. When batsmen of Asian
teams were struggling to play fast, hard, and bouncy pitches in Australia, South Africa, West
Indies, Sachin scored many centuries over there.

Source: ESPN

Highest runs, highest average, and the second best strike rate.

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Like Sachin’s style, differentiated business model puts Avenue Supermarts ahead of peers:

• Avenue Supermarts follows a cluster-based approach to store expansion, opening new stores
near existing ones, and distribution centers. The company has a higher operating efficiency than
its peers as it has been able to reduce transportation costs and realize economies of scale.
• The company invested in strong IT systems that allow efficient management of inventory and
less shrinkage.
• The company operates on a land ownership model compared with the rental model used by its
peers. It is able to save on rental costs and protects itself from potential increases in rental
expenses. For its competitors, rental costs typically account for 3–8% of the total.
• Avenue Supermarts has strong supplier relationships and procures goods directly from manu-
facturers and vendors. These strong relationships and an efficient operating strategy allow the
company to offer goods at lower prices than its peers.

Like Sachin’s overseas performance in tough condition, aggressive expansion despite weak

consumer sentiment worked well for Dmart:

• Because of its everyday low price positioning, weaker consumer sentiment helps it to gain
market share within organized retail, as people switch from premium to discount stores. 
• After a relatively dull Q2 management commentary and despite weakening consumption senti-
ment, the company accelerated its store openings sequentially as well as y/y (seven stores in Q3
versus five in Q2; 21 stores in 9M through December 2019, compared with 15 in the year-ago
period). 
• Higher growth in revenue per store (4% in Q3 FY20 compared with 3% in the year-ago period)
shows operational economies are working in its favor. This should improve further as we see an
increased proportion of larger stores.

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IRCTC and Virat Kohli

Unlike Virat in team India, IRCTC is a unique player and only one of its kinds in the market. IRCTC
is the sole provider of online tickets to the Indian railways, catering services to its passengers, and
a provider of packaged drinking water. It operates one of the most transacted websites, ww-
w.irctc.co.in, in the Asia-Pacific region with transaction volume averaging between 25M and 28M
per month during the five months ended August 31.

Like Kohli’s performance is the best among the top four players in the cricketing world, return
given by IRCTC is best among the recent IPOs

Like Kohli’s aggression on the field, IRCTC is rapidly growing its e-catering business:

Station-based e-catering services were announced in September 2014, starting with 14 trains. It
was extended to add 201 trains in 2015 and 409 stations in 2017. The e-catering services are
offered on its website, the “food on track” app, on online platforms of approved aggregator part-
ners, or by calling 1323. As of July, there were about 700 partner restaurants listed on its platform.
Partner restaurants are selected through a tender. They pay IRCTC a commission of flat 12% of
the order value for every order received through any of the channels.

Average meals booked per day have been consistently on the rise since the first order placed in
October 2014, to ~8,500 orders in July 2018, and ~20,000 orders in July 2019. During the period,
revenue from e-catering services had a CAGR of ~600% and rose to Rs 400M in FY19 from Rs
0.2M in FY15.

This exponential rise can be attributed to the growing internet penetration and an expanding list
of popular partner restaurants. The younger generation, with an awareness of the food brands,
has also helped growth. With the company planning to add more restaurants and spreading the
e-catering services to more stations, growth is inevitable in this vertical.

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As Kohli is the only batsman on the top in all three formats, IRCTC is the only portal to issue
Indian Railway tickets online

IRCTC is the only entity authorized by the Indian railways to issue railway tickets online through its
website “irctc.co.on” and the “Rail Connect” application. About 71% of the total Indian railways’
tickets are booked through these two channels. Online bookings saw a 12.5% CAGR in the last
five years to reach 284M annually. With increasing internet penetration, online bookings continue
to rise and contribute more than 80% of total tickets issued.

The captain Kohli always has good strategies to defeat opponent, IRCTC is up with new strate-
gies to diversify services offered to customers:

IRCTC is a strategic partner of the Indian railways, which provides good value to its customers. It
transacted about Rs 360B in 2019 through banks and payment aggregators. To capture the
space, it has introduced its payment gateway IRCTC e-wallet and is developing other facilities
such as IRCTC iMudra and i-Pay.

IRCTC will start the third train, which will run between Indore and Varanasi.

P/E ratios are an end effect

Virat has been consistently performing well for many years. Sachin also did the same. Even after
injury, Sachin came back strong and kept scoring. Dmart closed the listing day with a P/E of 70,
IRCTC closed on the listing day with a P/E of 40. It was too high for many market experts. But now
Dmart trades at a P/E of 130 and IRCTC at a P/E of 70. So as the top players keep on performing
well, quality stocks always attract higher valuation.

Stocks Listing P/E after stock doubled on Current P/E

listing day
DMart March 2017 70 130

IRCTC October 2019 40 70

When the markets are at an all-time high, we observed that what goes high goes higher. It
becomes important for market participants to know that; instead of trying to pick low P/E and
undervalued stocks, go with the trend. Do not hesitate to selectively increase risk in quality ideas
emerging from early-stage bases and trading at all-time highs. Our studies suggest that P/E ratios
are an end effect of accelerating earnings rather than a cause of higher or lower prices. We aren't
arguing with them but instead just haven't found them to be effective predictors of stock.

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FROM O’NEIL LENS

IRCTC

Extended from ideal buy zone

and key moving averages
485% return since IPO in
October 2019 Power to pivot

Strong RS

Cup with handle base Breakout

D MART

Extended from ideal buy zone

and key moving averages

Strong RS

Cup with handle base

800% return since IPO in

March 2017

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Research Team:
Mayuresh Joshi, mayuresh.joshi@williamoneilindia.com
Kongari Rajashekar, kongari.rajashekar@williamoneilindia.com
Rushit Sejpal, rushit.sejpal@williamoneilindia.com
Satya Narayan Panda, satya.panda@williamoneilindia.com

Disclaimer: William O Neil India Investment Adviser division, is one of the divisions of William O Neil India
Private Limited, which is a company incorporated under the Companies Act 1956. William O Neil India Invest-
ment Adviser division is a registered investment advisor with the Securities and Exchange Board of India and
through its online product, MarketSmith India intends to provide quality equity research material and information
to its customers. The investments discussed or recommended through MarketSmith India may not be suitable
for all investors and hence, you must rely on your own examination and judgement of the stock and company
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investments based on the contents of this document. Past performance never guarantees future results.

Analyst Disclosures: No part of his or her or their compensation was, is, or will be directly or indirectly related to
the specific recommendations or views expressed in this research report.

Disclosure of Interest Statement Companies where there is interest

Analyst ownership of the stock No

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