Any model to judge valuations will categorize this business overvalued since there are factors in the context of this business that are non-quantifiable and unfit for a model but extremely important.
For instance:
- As the business fulfills the most basic need, every human is a potential customer. So, demand is guaranteed as long as business ensures supply with efficient sourcing and store opening.
- Instead of marketing gimmicks, the customer pull comes from good quality products at lowest prices.
- While building a durable moat, it’s achieving the core purpose of a business- generate reasonable profits and operating cash flows to ensure sustainability. Replication by competition will need similar amount of time, higher cost, and below par profitability to outdo Dmart’s operation.
- By owning land and building, operating expenses will remain lower than peers. This becomes main tool to lower prices and fight with any signs of competition and break even a store in less densely populated areas.
- For matured stores, sales will continue to grow at least at the rate of inflation and depreciation would become negligible with time. Hence, operating cash flow and profits will increase with time.
- Option to add floors (just my hunch) in the building for category extension beyond essentials could be next level of growth lever.
- Thinking Owner and Operating mangers: Testing new areas with pilot projects, and scaling only after unit economics are in place. For instance, pharmacy within store is the recent one.
- Ears on ground: I raised concerns couple of times and they were really addressed and in prompt manner. Service from their competitors has been poor on this aspect.
Above are my beliefs as of today!!!
Disc: Invested.
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