India's Avenue Supermarts shares soar in debut after $286 mln IPO

Shares of India's Avenue Supermarts Ltd more than doubled in value in their trading debut on Tuesday, after raising 18.7 billion rupees ($285.85 million) in an initial public offering that drew strong demand.

Shares in the popular supermarket operator were trading at 605.70 rupees or up 102.6 percent at 0623 GMT on the National Stock Exchange, having risen to as high as 616.25 rupees, compared with their issue price of 299 rupees.

Avenue Supermarts operates 118 supermarkets across 45 cities under the "D-Mart" brand, offering a range of items from food to apparel and general merchandise.

India's retail sector is still predominantly dominated by small neighbourhood stores called "kiranas", while organised retail penetration levels remain low.

However, India is now seeing the rise of big supermarket operators such as Reliance Retail, part of Reliance Industries , and analysts see big scope for growth in the industry.

Avenue Supermarts is seen by analysts as a potential market leader given its steady increase in stores and its know-how in operating the stores, having yet to shut a store since its establishment in 2000.

"Avenue Supermarts has managed its operating costs well compared to other companies in the sector, mainly because of a good working cycle and inventory management," said Amarjeet Maurya, senior research analyst at Angel Broking.

"At a time when the retail industry is doing bad and there isn't a lot of penetration, the company is still generating good profit and return ratios compared to its peers, and that is why it is getting a reward today."

The IPO, the country's biggest so far this year, was subscribed 106 times, and attracted anchor investors including the government of Singapore and Goldman Sachs.

India recorded its best year in IPOs in six in 2016 with $4 billion worth of share sales, and has seen a continued number of high-profile listings this year, including a $185 million IPO by BSE Ltd, the country's second-biggest bourse.

Avenue Supermarkets predominantly works on an ownership-based model and owns most its stores, as against the rental-based model of its peers.

Among the key risks to the company's future are its large concentration in the states of Maharashtra and Gujarat, which bring in nearly 81 percent of its revenue, and delays in operations, analysts at brokerage Geojit wrote in a recent note.