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If we do not take into account FDR and his successful dismantle of the British Empire and colonial world in general…?For the same reason Germany lost WWI. Too small number of divisions and a fight on too many fronts. Hitler didn't plan it this way but strategy is dynamic and history judged from an armchair … static. Sort of. ;PHistory repeated itself.So let me skip the military reasoning for a second cause I guess everyone knows now that WWII in Europe was really the battle between two totalitarian systems and western front in numbers was really a laugh compared to eastern. That’s because it was meant to be that way from the beginning. War with Soviet Union. Let me focus on Geostrategy then. Planning, diplomatic effort and how dynamic situation shaped the path of this conflict leading to another great war and why history repeated itself.So to understand the loss we need to look back at the body of work of the father of German Geopolitics and Geostrategy General Mayor doctor Karl Haushofer first.A really great geopolitical theorist.Haushofer was a professor of Rudolf Hess and made him a courtesy of visiting him 8 times for 2 hours each in jail during writing of Mein Kampf.Hess realized very quickly that Hitler doesn't have a clue what he is talking about and what he actually wants to say except some lamenting over German fate. So he invited Haushofer to clarify geopolitical and high level military issues. His visits turned to be the most influential on Hitler’s vision of lebensraum of all.Haushofer understood the reasoning behind Bismarck’s Geostrategy.And actually the situation was very similar to the one we have today between The US and China geopolitically speaking. It was also similar to Hitlers.One of the greatest eras of globalization was established by British Empire controlling naval trade routes with it’s dominant navy. It benefited Brits pretty much until 1870 when German reunification happened. This in turn was a result of Prussia becoming stronger than Russia and taking large part of Kingdom of Poland as a result of partition. Along with Polish large population able to fight a war with France as Prussian soldiers and to increase production of German rising industry, came German strategy to grow. It is present today and will be forever after. To build the supply chain in the east.Soon after Brits realized something is wrong.That because of globalization German products being better, cheaper and produced faster, started to push British equivalents out of profitable markets in colonies. They were losing economically being at the same time sole guarantor of free world trade putting their money in Navy circulating. Sounds familiar? ;)So naturally British Empire was first to brake globalization with naval blockades of German exports and withdrawal from globalization it created itself, back to bilateral foreign relations. Literally the same situation we have today with US - China trade war, TPP and TTIP on one hand and BRI on the other. So it was the reality for Bismarck back then as well…Germany having their trade routes to their colonies and of other countries controlled by British Navy weren't strong enough to engage in war just yet to stop Brits from banning them from markets they've won being competitive. Nevertheless they decided to challenge British Empire in the long run. But to do it they needed to follow successful march east to gain resources for faster growth.Haushofer’s diagnosis of the WWI loss was that the Germans underestimated Russian strategic depth just as Napoleon.They would have won if they had twice as much divisions as Russians had.That was his estimation.Even successful intelligence operation of putting German agent in charge of Russian state - Lenin, failed. Despite Lenin signing obedience documents in Brest as a head of the new state - Soviet Union, it was already to late for it to have any impact to enforce establishing inland German colonies, that would be immune to projection of power done by the British Navy. The WWI was already lost.Haushofer made a great analysis of German loss in WWI and his conclusions, also military were solid.So here’s Hitler in jail with no other option but to think big again;planning to form the great German Empire again;And having in the long run to challenge Great Britain again,Knowing Germany couldn't compete with British Navy in short term again,We also have to remember that both wars happened in colonial world.So really astonishing power needed to challenge the balance of power during peace by only economical measures and already proven to be insufficient. Going east to develop and grow was inevitable and actually strictly related to a debate over returning of German colonies in Togo, Kamerun, Tanganyika in 1938.Just a little additional reminder that at the time the British Empire had 26% of whole landmass of our planet under the thumb and Germany had none.Colonies was also the reason that united Italy in Axis claiming Tunis for example and lots of other terrain against France. Obviously it was the case for Japan as well which was already an industrialized country but with very little natural resources, so they planed to colonize Australia. They had a successful war with White Russia and occupied Manchuria. Natural resources were the most important asset in colonial world. Today Australia is one of the most important if not THE most important country for Chinese supply as well. And just as back then, today major German income is export of industrial production but no hands to sustain it except in the east that has not so cheap labor force anymore. Hence European Refugee Crisis. ;)So what does Hitler do?First he realizes he is literally in the same spot as Bismarck according to Haushofer’s analysis. There is just to little troops to win the war with now Soviet Union. And that he needs resources just like Bismarck. So he goes east to Czechoslovakia and Austria and start to form an alliance to have enough troops to finally succeed.So Haushofer was convinced after his analysis of WWI that invasion of Soviet Union to make it a colony cannot succeed without at least this 220 German divisions as a part of much larger forces outnumbering Russians 2 times.The plan was to gather 600 divisions and strike simultaneously from both sides - Japan (200), Germany (220), Poland (100) and other Axis members.He needed allies because he haven't got this many troops and logistics on his own. Soviets had at this point barely 300 poorly equipped and they just finished German intelligence inspired purge of 40000 officers. German staff was excellent.That's why he came to Japan which had war with Russia and USSR and were quite successful. And he came to Poland as well with proposition of forming the Axis. This was also a result of war games done in Berlin stating that coming through Poland would be very difficult just to start a war with USSR. Polish army already defeated the Red army in 1920 protecting Europe from revolution.In 1936 he had a deal done with Japan and both Germany and Japan were trying to recruit Poland. Starting on August 5th 1935 Hither claimed many many times good relationship with Poland being Germany’s top priority.The “corridor” too was so important for Germany to move around Poland to get to the Soviets.He even payed in gold for transit to Prussia.He showed many, many acts of more than good will to overcome the Polish problem one way or another. The optimal way for him was to have Poland in Axis. And he wanted Poland in Axis very badly not only to save German troops.We have to remember that at this point there were 6,5 million communists in Germany alone and Hitler hated comrades deeply (one thing he got right…) despite being socialist himself, so in fact a left winger. Hitler also admired Marshal Józef Piłsudski for beating up the unbeatable Red Army in 1920. Also he knew that Piłsudski was also a German agent that went his own country’s way against German interest just as Lenin after WWI.The really astonishing thing is that first mentioning of idea of German - Polish war against Soviets was passed from German army to Polish army back in 1934!!! Cause official efforts made by Germans to have Poland in Axis started in 1935 and as we know ended in January 1939.In 34 it came from the German chief of general staff. Future Polish General Gutowski has it in his memoirs. I also recommend a great read of ambassador Lipski memoirs “diplomat in Berlin 1933 - 1939”. Hitler in fact had no bad feelings about Poland, quite the opposite despite the best effort of Prussians. It changed later in 1939 after his plans failed.Nevertheless for Hitler the future conflict with Poland and Japan was inevitable as well. In fact in 1943 German internal propaganda was already preparing German troops for war with Japan.Unfortunately for Germans after 4 long years of German efforts Polish government refused to join Axis.And since this very moment everything started to fall apart and turning into WWI again, even before WW2 started.War games results were clear. That's why Hitler HAD to form a temporary alliance with the Soviets. And that is also why a secret protocol to Ribbentrop Molotov pact was so secret.As a consequence there was another far bigger problem - Japan.After joining the Axis in 1935 they were a serious German partner.After war won with White Russia and their successful campaigns between 1918 and 1922, Russia was already engaged in continuing battles with Japan throughout 1930s. To make matters worse just a couple of days prior to signing Ribbentrop - Molotov nonaggression pact Japanese lost a 4 month campaign of Khalkhin Gol engaging on both Russian and Japanese side 100.000 troops 600 tanks and 1500 aircrafts….So obviously the Japanese considered a Ribbentrop - Molotov pact a treason. And to pay back they did exactly what France and Brits did with Poland on September the 3rd 1939.Japan just pretended their real engagement in alliance to attack Soviets simultaneously as agreed with Hitler and went instead for a cup of (green) tea with Stalin signing a ceasefire in September of 1939 and doing nothing afterwards despite their promise to engage, after Hitler finally attacked Soviets .Russians today are considered not only by themselves the most important nation of the “good side”. But the fact of the matter is they had a nonaggression/ceasefire pacts working for their benefit with the only two important members of the Axis throughout the entire war. First the Germans then Japan separated by 3 weeks. :))))))So because of Poland the “must have” 220 divisions and 600 divisions “optimal to have” strategy of Haushofers’ was doomed from the beginning.Becaues Polish government refused to Join the Axis and refused to give corridor to Prussia. Japan went off after their own business in the Pacific.Hitler's 600 divisions pufff… vanished.The nice touch of the Japanese payback game was that they promised to engage their best and already very experienced Siberian veteran units. But being already aware of the treason Hitler committed, the Japanese requested a promise form Hitler to declare war on US as soon as Japanese forces engage with them.And so after Pearl Harbor which was provoked by FDR, (there is no doubt about it), Hitler declared war on US only to find himself in Moscow battle fighting with Russian Siberian troops that were supposed to be engaged with Japan. Russian spies already knew Japan would not attack and they just moved almost all of their troops to the west.This was the moment in late 1941 when according to documents Hitler for the first time thought the war might actually be lost.And also this very moment marks the turning point in fate of Jews for what the one that dominates perception of the war in Europe today as a Holocaust machine.(for people interested in this - read about the Madagascar Project)So all this house of cards game of building 2 to 1 German advantage over Soviets turned full circle to exact the same position Germany started WWI in.The nightmare of Haushofer in the flesh for the second time made him commit suicide. And there was no important German spy such as Ulianov to kill western front as he did with the eastern in WWI.In fact before the war even started chief of German intelligence Admiral Wilhelm Canaris not as a prophecy but as a result of cold analysis said:“when Poles say ‘no’ the war is lost”Poles were reluctant to reply for 4 long years watching Japan advancing and calculating that Hitler would not abandon such an ally to make friends with Russia. And then for Hitler Russian scenario just had to take place instead of Polish one. Poles should have declared neutrality and just let German forces through to Prussia.But the plan behind it actually was not Hitler’s own at all. This was not a coincidence but a very clever plan of Stalin.Because first it's important to know that the initiative for German - Russian alliance wasn't German. It was Russian.In fact the pact should have been called Molotov - Ribbentrop not the other way round.Yeeeeees… :)))) the pure Russian souls did it… :) not the Prince of Evil - Hitler.Hard to believe but it was a result of terrifying fate for Russians to face - an identical situation as Poles had to face in September of fighting on both fronts. So it was again - a cold calculation that Stalin made that they cannot possibly survive attack of German, Polish and Japanese forces combined. They knew, obviously. Even in spring of 1941 war games done in Russian General Staff between Zhukov and Pavlov resulted in “deep penetration of Russian territory” and really quickly. So no startegic deap.So the chronology is as follows:In January 1939 Poles at last refuse to join the Axis and are manipulated by unprepared for war Brits to choose side. It changes in Brits mind the direction of Hitlers military action toward east. And they are not mistaken. ;) Despite the fact he never planned to attack western Europe in the first place. Except UK.It was Stalin who in his speech to central committee on March 10 1939 in clear text declared Russian openness for trade and diplomatic cooperation between Soviet Russia and Nazi Germany stunning Hither who knew that the Russians already knew about his plans of war with Russia. Ribbentrop soon followed.The ceasefire negotiations between the Russians and Japanese started soon after lost Japanese campaign in Manchuria and after few days later committed German treason - R-M pact signed on August 23 1939.Ceasefire between Japan and Russia ending in fact intense fights between Japan and Russia in WW2 was signed when?…. :) September 15 1939 setting ceasefire start the next day. This very day marks the end of Russian eastern front.Day after that - September 17 1939 Russians were crossing Polish border to meat their allies in Warsaw for shake hands.Nevertheless Hither was furious of the inevitability of alliance with Russia antagonizing Japan because of Polish refusal and pact with Britain and France. He had to have his vengeance as well.The famous order labelling munition supply to fight Warsaw says it all:“Nicht sparen”.Do not spare. And they didn't.The other I think most important role in Germany losing WW2 was FDR’s very plan to dismantle British Empire and colonial world jointly with Soviets. This was the true reason behind Lend-Lease program and humiliating deal Churchill had to make with FDR to brake internal trade regulations of British Empire. And also to pass all British developed military technology - The famous “Case”.If you are interested in this please refer to Cardinal Spellman’s memoirs of his classified conversation with FDR about reasoning behind Lend-Lease program.So either way… the biggest looser of WW2 in a long run was not Germany. It was Brits. Look at Germany now dominating Europe… Just as in Bismarck’s dream of great Prussia but without British Empire interfering anymore. Yes there WAS the US replacing UK as a naval power able to block trade routes… it doesn't have such importance anymore because of BRI being land trade route not naval. And the US still is just as UK was a naval power not a land power. As soon as BRI land line is operational, US projection of power would be gone. Just as Bismarck planned his empire of the east. No navy needed. Just roads and inter-connectivity. So Germans lean now toward China… for the same reasons. :) They know the US is weak. So there is no need to watch it closely anymore and be obedient. I presume no F-35 deal will be signed…

Avenue Supermarts seems to have developed a competitive advantage over its peers owing to its different strategy. The company is doing two essential things differently - owning rather than renting retail stores and selling things cheaper than its peers.I don’t know how the former gives it any advantage over others because the company has to take debt(and block capital) to buy the stores which leads to a fixed interest cost that is almost similar to rental costs which it supposedly saves. But the latter does provide it a strong competitive advantage.When you sell your products cheaper than your competitors, you attract a larger number of customers to your store. So even though you make a lower gross profit margin compared to your peer, you’re able to sell a larger volume of products than the peer, resulting in much higher sales per store and higher gross profits despite the lower margins. And you get the advantage of operating leverage -higher gross profit gets distributed over marginally higher operating expenses(since most of the expenses are of fixed nature) - resulting in higher EBITDA margins. (If you study carefully, you will see that Future Retail too has started lowering its gross margins. So let’s see the sustainability of this strategy.)The other advantage of this strategy is that since you sell your products rapidly, your suppliers are happy with you and they give you discounts.Key risksPrice disruption is mentioned as a key risk to the business:If we are unable to continue to offer daily low prices pursuant to our EDLC/EDLP pricing strategy, we risk losing our distinct advantage and a substantial portion of our customers which will adversely affect our business, financial condition and results of operations. Further, in case of shortages, our suppliers may increase prices of products beyond our control due to which we may lose our competitive advantage.Several of our competitors including e-tailers offer promotional prices on select products at a given time period or around festivals, holidays or weekends. We have not followed this model in the past and do not intend to follow it in the future. While we have managed to grow our customer base in the past, there can be no assurance that our target customer base will not develop a preference for the promotion model and be attracted to promotional deals offered by our competitors.Further, in relation to General Merchandise & Apparel products, we do not have fixed terms of trade with the majority of our distributors or suppliers. Accordingly, we may not have access to additional discounts and special schemes offered by such distributors and suppliers, which may make it difficult for us to always follow the EDLC/EDLP strategy.The second pertinent risk in this business is that as they grow rapidly it will obviously become difficult for them to find suitable locations for new stores. Though they have successfully demonstrated their capability in showing profitable growth in the past.As we expand our store network, we will be exposed to various challenges, including those relating to identification of potential markets and suitable locations for our new stores, obtaining land or leases for such stores, competition, different cultures and customer preferences, regulatory regimes, business practices and customs.As a new store location should satisfy various parameters to make an attractive commercial proposition, finalisation of location and property acquisition for our new stores is an evolving process which may not progress at the same pace as in the past or at the expected pace. Further, the ownership model requires greater capital for opening of each store due to which we may not be able to expand at our historical rates. We may be required to obtain loans to finance such expansion and there can be no assurance that such loans will be available to us on commercially acceptable terms, or at all.The company generates a big portion of its revenue from the Foods category including staples.Revenue generated from the sale of our Foods product category including staples groceries, fruits and vegetables, snacks and processed foods, dairy and frozen products, beverages and confectionery constituted 53.06% of the Revenue from Sales of our Company for the year ended March 31, 2016.We believe that we have been successful in this category due to our deep knowledge of product assortment, pricing dynamics and strong supplier relationships. Our success in this category is also, in part, dependent on our ability to offer value for money using EDLC/EDLP pricing strategy. If our competitors are able to successfully follow our EDLC/EDLP pricing strategy or due to a change in customer preferences or any other factors, whether within or beyond our control, our revenue and profitability from this category may decrease and this may result in an adverse effect on the financial condition of our Company.The company’s promoters own interest in other retail businesses of different formats.Our Promoters directly own 50.75% in our Associate Company, Avenue E-Commerce Limited. Although our Associate Company has not yet commenced operations, its objects include e-tailing of products. We cannot assure you that the operations of our Associate Company will not be in the same markets as which we currently operate in and its offerings will not compete with us. Furthermore, some of our Promoters and members of Promoter Group own interests in other retail businesses (of different formats) such as Bombay Swadeshi Stores Limited.There can be no assurance that our Promoters will not conduct or engage in competing businesses in the future. Further, there is no requirement or undertaking for our Promoters or Associate Company or such similar entities to conduct or direct any opportunities relating to the retail industry only to or through us. As a result, conflicts of interests may arise in allocating business opportunities amongst our Company and our Associate Company in circumstances where our respective interests diverge. In cases of conflict, our Promoters may favour our Associate Company or other companies in which our Promoters have interests in the future.There can be no assurance that our Promoters or our Group Companies or members of the Promoter Group will not compete with our existing business or any future business that we may undertake or that their interests will not conflict with ours.Further, our Company has entered into leave and license arrangements with 7 Apple Hotels Private Limited, Promoter Group entity of our Company. For further details, see “Our Promoters and Promoter Group” on page 154. We may continue to enter into arrangements with entities where our Promoters are interested and there can be no assurance that our Promoters will not have conflict of interest in such cases.Overview of the businessAccording to Technopak, in Fiscal 2016 the Company was one of the largest and the most profitable F&G retailer in India. The company offers a wide range of products with a strong focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories.From just one store in Mumbai in 2002 the company has grown to 112 stores as on 15th September 2016 located across 41 cities with a main focus on Maharashtra(58) and Gujarat(26) followed by Telangana (13), Karnataka (7), Andhra Pradesh (3), Madhya Pradesh (3), Chhattisgarh (1) and NCR (1). The total business area of all the stores is about 3.40 million square feet.At the end of Fiscals 2014, 2015 and 2016, we had 75, 89 and 110 stores with Retail Business Area of 2.14 million sq. ft., 2.66 million sq. ft. and 3.33 million sq. ft., respectively. We plan to deepen our store network in southern and western India and gradually expand our network in other parts of India pursuant to our cluster-focused expansion strategy.For Fiscal 2016, Maharashtra contributed a majority of Revenue from Sales (62.57%) followed by Gujarat (18.83%), Telangana (10.15%), Karnataka (6.14%) Andhra Pradesh (1.03%), Madhya Pradesh (0.85%) and Chattisgarh (0.43%).So we can see that a majority of the company’s revenue is coming from Maharashtra and Gujarat.The company mostly operates on an ownership model (including long-term lease arrangements, where lease period is more than 30 years and the building is owned by the company) rather than rental model.The company follows cluster approach while opening new stores on the basis of adjacency and focusing on an efficient supply chain, targeting densely-populated residential areas with a majority of lower-middle, middle and aspiring upper-middle class consumers.The company operates distribution centres and packing centres which form a backbone of its supply chain. As on 15th September 2016, it has 21 distribution centres and 6 packing centres located mainly in Maharastra, Gujarat, Telangana and Karnataka.The total revenue grew at a Compounded Annual Growth Rate (CAGR) of 35.28% from Rs 47,023.25 million in Fiscal 2014 to Rs 86,061.05 million in Fiscal 2016. The net profit after tax grew at a CAGR of 41.08% from Rs 1,613.72 million in Fiscal 2014 to Rs 3,212.07 million in Fiscal 2016.Business strategyInstead of focusing on discretionary spending, the company distinguishes its business by focusing on selling necessary and basic products. The company minimises its operating costs in several ways such as owning underlying real estate or entering into long-term lease arrangements for a majority of its stores in order to minimise rental costs, procuring goods directly from vendors and manufacturers, employing an efficient logistics and distribution system and maintaining a strong focus on product assortment to minimise inventory build-up, supported by efficient store operations.Some of the key strengths of the company according to the DRHP:Value retailing to a well defined target consumer baseOur business model is based on the concept of offering value retailing to our customers using the EDLC/EDLP strategy. The EDLC/EDLP strategy is based on offering low prices on an everyday basis by achieving low procurement and operations cost rather than as special promotion limited to certain products or to a particular day, week or any other specific period in the year.Our customer acquisition and retention strategy is targeted at lower-middle, middle and aspiring upper-middle income consumers. We believe that getting value for money is the most compelling factor in daily shopping decision-making for these income groups. The majority of the products stocked by us are essential products forming part of basic rather than discretionary spending, due to which we believe that our business is not materially affected by seasonality or temporarily depressed macro-economic conditions.The EDLC/EDLP strategy requires us to minimise our costs of procurement, supply and operation to achieve low prices for our customers on a daily basis. We focus on providing such low prices across our product categories and product subcategories within these categories everyday rather than on a particular day of the week or any specific period of the year.We typically follow our pricing strategy for all our products, relying on our strong supplier network, efficient supply chain management for procurement and careful product assortment. We believe that these measures help us in being recognised as a one-stop retail store chain for daily needs at value for money prices.Steady footprint expansion using a distinct store acquisition strategy and ownership modelKey highlights of expansion during the last five years:We have expanded our footprint using a cluster-based approach. We have strengthened our existing presence in certain regions by opening new stores within a radius of a few kilometers of our existing stores and distribution centres. This has ensured the creation of a cluster of stores within a region in which we believe, we have developed a better understanding of local needs and preferences and enabled us to tailor our offering. Such clusters have also led to increased penetration and presence in under-served markets, higher cost efficiency due to economies of scale achieved in our supply chain and inventory management, and greater and concentrated brand visibility due to focused implementation of marketing and advertising initiatives.In the process of opening new stores, we take various factors into account, including population density, customer traffic and vehicular traffic, customer accessibility, potential growth of the local population and economy, area development potential and future development trends, estimated spending power of the population and local economy and payback period, estimated on the basis of expected sales potential, strategic benefits, proximity and performance of competitors and store site characteristics. We have largely kept the layout and design of our stores consistent and predictable to make shopping with us easier.According to the company, ownership of stores has provided it a strong competitive advantage by lowering its operational costs.We have posted consistent growth in our ROE despite owning the real estate underlying several of our stores. We believe that owning the real estate on which our stores are built or entering into long-term lease arrangements has helped us control our fixed costs per store. Other than the rental savings, which is partially offset by higher capital and capital servicing costs, we believe that ownership (including long-term leases) of our stores provides us with significant long-term competitive advantage.Deep knowledge and understanding of optimal product assortment and strong supplier network enabling procurement at predicable and competitive pricing, leading to an overall efficient cycle.High operating efficiency and lean cost structures through stringent inventory management using IT systemsWe have benefited from our in-depth understanding of local needs and our ability to respond quickly to changing consumer preferences. This has been achieved in part due to our advanced IT systems. We use our IT systems for procurement, sales and inventory management which enables us to identify and quickly react to changes in customer preferences by adjusting our products available, brands carried, stock levels and pricing in each of our stores and effectively monitor and manage the performance of each of our stores.Together with our supply chain management systems and our internal controls to minimise product shortage and the occurrence of out-of-stock situations and pilferage, we are able to operate efficiently and productively with minimal disruptions to our day to day operations. Our Inventory Turnover Ratio (computed by dividing revenue from operations by average inventory, which is an average of opening inventory and closing inventory) was 14.32, 14.03 and 14.18, respectively in Fiscal 2014, 2015 and 2016.The company has a strong management team.Strong promoter background and an experienced and entrepreneurial management team with a proven track record and a high degree of employee ownership.The company’s founder, Radhakishan Damani is a well known investor in the Indian stock market. A value investor knows how to run a business efficiently.Our Board and senior management have a proven track record and an in-depth understanding of the retail business in India and local consumer preferences. Key members of our senior management team including Ignatius Navil Noronha, our Managing Director (who has over 18 years of experience in the FMCG sector) and Ramakant Baheti, our Chief Financial Officer and an Executive Director on our Board (who has over 19 years of experience in the finance function) are dedicated to the sustainable growth of our business and have been with us for several years. We believe that our stable, senior management team has helped us successfully implement our development and operating strategies and provide quality service to our customers over the years.We also believe that our employees have been an important factor in our success as the quality and efficiency of the services we provide are dependent on them. We have followed transparent management policies and have implemented employee stock option schemes over the years. Many of our present and past employees hold Equity Shares in our Company.We believe in continuous development and have invested in our employees through regular training programmes to improve skills and service standards, enhance loyalty, reduce attrition rates and increase productivity.Future strategiesThe company plans to continue expanding its stores in existing as well as new clusters. Maharastra and Gujarat will remain the key areas for store expansion. The company also intends to strengthen its store network in Andhra Pradesh, Telangana, Madhya Pradesh, Karnataka, Chhattisgarh, Tamil Nadu and northern India.The company has opened a new store in Ghaziabad, NCR in June 2016. The company will slowly develop clusters in new areas.The key factor affecting the expansion of our stores is the selection of suitable locations. We will continue to adopt a methodical and approach in evaluating and selecting suitable locations for the establishment of new stores, such as local population density, accessibility and proximity to our competitors.In order to optimise our profitability, maintain our operational flexibility and ensure that our stores continue to be located in densely populated neighbourhoods and residential locations, we intend to continue our flexible strategy of owning or leasing our premises according to availability, cost and other considerations.We believe that owning the real estate for majority of our stores helps us control our fixed costs per store and helps us execute our EDLC/EDLP strategy effectively and we will continue to follow this strategy. We will continue to strive to improve our Fixed Asset Turnover Ratio (computed by dividing revenue from operations by total fixed assets) which was 3.72, 3.96 and 3.95 for Fiscal 2014, 2015 and 2016, respectively.Financial AnalysisBalance SheetAfter analysing the balance sheet, I found out some interesting things.The growth in debt is a bit faster than equity resulting in a rising debt/equity ratio. In one of my earlier answers I have shown that if a company is able to generate an ROCE which is significantly higher than the interest cost on its borrowings, then it makes sense to take more debt. This is what Avenue Supermarts has been doing and it’s not a bad thing since the company is running its operations very efficiently.Working Capital turns have slowly risen from 18.21 times to 28.3 times indicating that the company is using its working capital very efficiently; higher working capital turns means that lower working capital will be required to generate a unit revenue, resulting in higher cash flows.The company has maintained Payable days at very low levels of less than 10 days. In contrast, its listed competitors maintain payable days between 40–50 days. It means that the company pays its vendors/suppliers on time and they, in return, give discounts to the company.The company has increased its fixed assets at 26% CAGR over the last five years.Income StatementThe company has reported a strong financial growth over the last five years with revenue growing at a CAGR of 40% and EBITDA growth of 45% CAGR.The company has low cost debt on its balance sheet; it’s paying less than 9.5% interest on its total debt.I’ve calculated EPS on the basis of post issue equity capital.Same store sales(average) is the average sales of all the stores - old and new.Like For Like growth measures the growth of revenue from stores that have been operational for at least 24 months. As you can see, there is a gradual decline in LFL growth as you can’t grow same store sales indefinitely - older stores will gradually achieve saturation, therefore a continuous expansion of stores is necessary to drive growth.Same store sales growth is the most valuable source of revenue growth as it doesn’t require additional investment in fixed assets.Revenue per sq.ft. is growing at around 10.25% but total revenue is growing at more than 35%. This implies that the company is increasing its total store area to drive revenue growth.Cash Flow StatementThe company is generating a good amount of cash from operating activities. A large amount of growth in working capital is coming from the increase in inventories driven by expanding operations.CFO excluding finance cost would be Rs 356 crore for FY 16 and Rs 150 crore for FY 15.The company is spending a larger amount than CFO on “Purchase of tangible and non-tangible assets”. This capex on fixed assets was Rs 658 crore for FY 16 and Rs 477 crore for FY 15. Almost half of this capex is funded by debt - the company issued NCDs worth 350 crore and commercial papers worth 50 crore in FY 16.The company is not paying dividend. This is not a negative thing as reinvestment of funds has created more value owing to high ROCE/ROE levels. The company should continue the trend of not paying dividends.This is a practical example of how increasing debt levels can improve ROE when ROCE is more than the finance cost of debt. ROCE improved from 13.31% to 24% and ROE improved from just 8.7% to 21% during FY12-FY16.ValuationThe IPO consists of a fresh issue of Rs 1870 crore. There is no offer for sale by existing shareholders.Price band : RS 295–299 per shareSo the company will issue approximately 6.25 crore fresh shares at the upper band.Outstanding shares before the issue = 56.15 croreOutstanding shares after the issue = 62.4 croreMarket cap post issue = Rs 18657 croreThe company will use about Rs 1080 crore for debt reduction.We don’t know the company’s financial performance for any quarter of FY 17. I’m assuming a growth of 30% in revenue and 35% in EBITDA for FY 17. The net profit would probably grow by 45% during FY 17.For FY-18 let’s assume revenue growth of 25%, EBITDA growth of 30% and net profit growth of about 50% as finance cost would have gone down as debt would also be reduced.The company is being valued at an FY-17 P/E of 40.13 and an FY-18 P/E of 26.67.The valuation on EV/EBITDA basis (assuming 200–300 crore debt post issue) is 20.37 times for FY-17 and 16 times for FY-18.Valuation of competitors:Keep in mind that all of these companies are growing at much slower pace and have lower EBITDA margins and return ratios compared to Avenue Supermarts.Demonetisation has helped retail companies grow at a faster than normal pace in the third quarter for the current FY as most of the customers preferred cashless transactions during this period.ConclusionThe company has an excellent track record with good future prospects. It will be the only listed retail company clocking an ROCE greater than 20%.“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” - Warren BuffettAvenue has been employing large amounts of incremental capital at high ROCE. I think it can continue this profitable employment of capital for the next 5 years as well.So if you’re a long term investor, you can apply for this IPO.[1][2]Footnotes[1] http://www.sebi.gov.in/cms/sebi_data/attachdocs/1475235183964.pdf[2] Avenue Supermarts IPO - Should you subscribe?

I think I first became aware that I was somewhat smarter than my peers in my early teens. I then became interested in intelligence, IQ testing, logic puzzles, Edward DeBono's books on lateral thinking and other stuff. I bought some of those 'Know Your Own IQ'-type books by the likes of Hans Eysenck and tested myself (as fairly as I could) and was not entirely surprised, though still quietly pleased, when I scored above the threshold for Mensa (98th percentile). So I guess I was already unusually intelligent as a teenager. From my reading on the subject, I also knew that my IQ would probably peak in my late teens or early twenties, so I was probably going to get even smarter.In my mid-teens, my interests switched from art and music to mathematics and physics, which probably happened as a result of my new passions for science-fiction and electronics, which developed at around the same time, and I consumed books on these subjects voraciously. I had been put in one of the lower streams in mathematics at school because I never showed much aptitude for it in my earlier school career. This was because I simply wasn't interested in it and found it boring, and I couldn't be bothered to apply myself to things I found boring. But once I had become interested in mathematics, I quickly moved beyond the mathematics I was being taught at school in both breadth and depth. I remember that I was friends for a while with a Chinese boy, Chong-Si Tong, who was in the top maths stream, and that he was astonished when I casually told him that I was studying partial differential calculus (in my leisure time). He told me that even his older brother, who was in his final year at school and also in the top maths stream, had not even touched the stuff that I was doing.Chong-Si was not the only one of my school peers who had become aware of my intellectual precociousness, though I didn't do much to hide it, and could even be a bit of a show-off; while my school peers decorated their school bags, briefcases and satchels with stickers of their favourite football team, or hand-drawn logos of their favourite rock bands, I personalized my tan leatherette briefcase with equations from the mathematics and physics I was learning, and would delight in explaining what they meant to anyone who asked.My teachers also became aware of my new-found passion for mathematics and physics, and some of them encouraged my interests in various ways. I was given access to the school 'computer' (really just an Olivetti teletype terminal linked by an acoustic coupler to the ICL mainframe at Sheffield Polytechnic - this was the 1970s, long before computers became ubiquitous in schools and homes). This was a privilege that only the students in the sixth form (the most senior two years in high school) normally enjoyed.True to the nerd stereotype, in my later years at school I had been excused from Physical Education because of persistent tendinitis in my Achilles tendons - a condition I am convinced was brought on by the punishing cross-country runs around the extensive and hilly school grounds that the P.E. teachers sadistically inflicted upon all the male students at least once a week (this is the reason why, to this day, I loathe any physical exercise or sport that involves too much running - it brings back too many vivid memories of the mud, sweat, shin splints, stitch, nausea and heaving breathlessness of those grueling runs). Because I was 'off sports', I would usually spend P.E. lessons in the school library, reading books on mathematics and physics, or in the library 'computer' room, writing BASIC programs to generate numerical results for the equations I had been studying in relativity theory.All of this, and the fact that I was also a member of the school Chess Club, the Natural History Club (I was made responsible for the care of the biology lab's xenopus toads) and the Debating Society, established my reputation as an uber-nerd, the School Brain, and my peers gave me the nickname 'Professor' and treated me with a mixture of bewilderment and deferential respect.After I left school, one of my oldest school friends, Andrew Silman, confided that I had been widely regarded by my friends and classmates as the smartest student in the entire school. I recall that my reaction to that news was an ironic laugh, the reason being that I had dropped out of school at the age of 16, with only a handful of academic grades to my name, so even if my teachers knew how bright I was (and some of them undoubtedly did), they probably thought I hadn't done much to demonstrate my abilities in terms of paper qualifications (and where our education system is concerned, paper qualifications are all that really count, right?). So I felt that being judged the smartest kid in the school by my peers was a kind of vindication, and a 'fuck you!' to all the teachers who had written me off as a 'gifted under-achiever' - or just a failure.The reason I had dropped out of school was that my father died at the age of 58 when I was 15. [1] This event pushed me into a kind of psychological shut-down, and I withdrew from the world into a protective shell. I decided that school was no longer a major priority in my life - staying sane was. [2] So I started played truant (US: 'hookie') constantly, and only turned up at school for a few days out of my final school year - much to the exasperation of my teachers and the school's truant officer. I just stayed at home all day, and lost contact with pretty much all of my school friends, except for Andrew Silman, who lived close by and used to call round quite regularly (partly, I suspect, to check that I was okay). [3]But the time I spent at home was not wasted. On the contrary, I applied myself to study as I had never done at school. I devoured books on mathematics and physics, and immersed myself in a world of abstract ideas to the exclusion of almost everything else. I would sit in an armchair in the living room, or at the kitchen table, and just read, take notes and do calculations for hours on end without a break. I also became a chronic insomniac, as I would frequently stay awake studying all night long, fueled by endless cups of coffee, with only the radio (either Radio Luxembourg or American Forces Radio (Europe) - I liked their music playlists) and the family dog for company. I would study until the 'dawn chorus' of twittering birds and the first rays of the morning sun told me it was probably time for me to get some sleep.I eventually got a temporary 'work experience' job working as a trainee lab technician at Sheffield University, in the department of physics and astronomy, which was my first introduction to the world of work and of academia (thinking about it, perhaps I was the original Will Hunting, haha!). I became friends with many of the physics students I met there, and I secretly envied them because they were at university, studying physics, and by that time I knew that that was what I wanted to do more than anything else in the world. But I also feared that this was an impossible dream, given that I had dropped out of school at 16 with only a handful of qualifications. Then I turned 18 and came into the money from my father's estate and pension and the sale of the family home (I had moved into my own two-room apartment by then). I decided to take time out from work and concentrate on my studies again, in the hope of at least gaining entrance to a local further education college to study something practical, such as computer programming or electronics - both things I had previous experience of, and interest in, of course.Then, in the summer of 1980, fate finally smiled on me. I came across an advertisement (no larger than a postage stamp, so it was very lucky that I spotted it) in the Guardian newspaper for a course at Middlesex Polytechnic, a college in London. It was a new kind of course, called a Diploma of Higher Education (Dip.H.E.), developed by an American educationalist, Joel Gladstone. It was a modular course offering a wide variety of subject choices, including mathematics and physics! And, crucially, no formal school qualifications were required for entry! All applicants had to do was turn up for a day of interviews and tests. So I did. And - joy of joys - I was accepted!In the late summer of 1980 I moved from Sheffield to the idyllic environs of Middlesex Polytechnic's Trent Park campus - a large country park on the outskirts of North London, centred around a Georgian mansion house (the ancestral home of the Sassoon family), with a lake and acres of wooded grounds. (It was such a green and peaceful setting that it was hard to believe it was only 30 minutes by tube from central London. middlesex uni trent park campus) I spent two of the happiest years of my young life there, made many good friends, and studied not only mathematics and physics but also microelectronics, organic chemistry, microbiology, astronomy, electronic music, computer graphics, sociology, philosophy and psychology. And I loved every minute of it! (Incidentally, it was during my first summer vacation at Middlesex that I—finally—sat the IQ test for entrance to Mensa, and was accepted. It was also in that summer that I got to grips with the mathematics of wave theory and Fourier Analysis.)In my final year, I knew that if I was ever going to gain entry to a university to study theoretical physics (I had realized by this time that I was far more interested in theoretical physics than experimental physics, because it was more mathematically challenging and 'out there'), hopefully using my Dip.H.E. as a substitute for school grades, then it was now or never. So I applied to pretty much every university in the country that offered a theoretical physics course (this was not actually a very long list, as most UK universities back then did not offer theoretical physics, and they probably still don't, as it is seen as a rather esoteric subject that only appeals to a small minority of students).Now, theoretical physics is a tough course (apparently the toughest course there is, according to a recent academic survey) and so universities generally consider only the best and brightest applicants for it - straight-A students with top school grades in mathematics and physics. I didn't have these, of course; I was only doing a two-year higher education course at - horror of horrors - a polytechnic! [4] Worse still, I had already used up two years of my four-year higher education grant (fortunately, this was the 1980s, before non-repayable student grants were replaced by student loans), and as a standard degree course took three years back then, this would mean that I would have to go straight into the second year, or I would have no grant left to cover my final year.All of these things meant that I was fully expecting most of the university registrars who received my application to just glance at it briefly and feed it straight into the shredder (perhaps with a contemptuous snort) without even showing me the courtesy of responding with a rejection letter. And, apparently, all of them did - except one. Just as I was giving up hope, I got a letter inviting me to an interview at the University of East Anglia (U.E.A.) [5], a modern 'provincial' university in the picturesque, medieval market town of Norwich, in the county of Norfolk (a large coastal county of endless farmland and big skies, and very hot and dry in summer - probably the closest the UK comes to Texas). I attended the interview, which went well, and they said they would be in touch.I completed my Dip.H.E. course, bade farewell to London (though I was to return and settle there a few years later) and spent a relaxing, enjoyable and memorable summer at my sister's home in Sheffield, while continuing to study mathematics and physics in the hope that my application to U.E.A. would be successful (this is when I read the Feynman Lectures on Physics, among other books). Imagine my exhilaration when, later in the summer, I received a letter from U.E.A. informing me that I had been accepted into the second year (phew!) of their theoretical physics course! And the rest, as they say, is history (or perhaps for another time...).So, to return to the original question, yes, I guess I was abnormally bright as a teenager. The fact that I was able to get onto the second year of a theoretical physics degree course after dropping out of school at 16 (well, technically, 15...) with only a few qualifications is probably a good indication of that (I certainly don't know anyone else who's done that, though I'm not saying they don't exist). I was also very lucky, of course, on at least two occasions; firstly, finding the advertisement for the Dip.H.E. course and then getting the interview at U.E.A.. But I had also put in a lot of dedicated study over the five or more years leading up to that point, so I feel that I had earned my luck. I'm not sure brains alone would have got me into university, but brains combined with passion, determination and hard work did. I think there is a lesson there for everyone; being smart is all very well, but there is still no substitute for good, honest graft.[1] This was not entirely unexpected, as my father had suffered declining health for some years due to a heart condition, but it was obviously still upsetting, even if I didn't show it outwardly. I think my brother was surprised by my apparently stoical reaction to the news (my father died in hospital, having been taken ill on a fishing trip, while I was at home). But I had already been hardened to grief by the death of my mother when I was 9 - an event that had hit me much harder at that younger age, and which probably also hastened my father's physical decline. I had also been psychologically preparing myself for the inevitability of my father's death for a long time and, in a sense, I had already rehearsed both his death and the grieving process many times before in my head, so when he finally died I just felt a kind of numb resignation. With my father's death, this also meant that I was technically an orphan, though my brother was just old enough to qualify as my and my sister's legal guardian, which he became. The three of us lived on in the family home for another year or more, in circumstances reminiscent of - though less dramatic than - the 90s American TV series 'Party of Five', before we each moved out to separate addresses and on to jobs or college.[2] Not that school had ever been a major priority for me. I regarded school as something to be endured rather than enjoyed, as I found most school lessons unchallenging, boring and irrelevant to my interests*. After my father died, maintaining my academic grades seemed even more irrelevant and unimportant - I felt that I had no one left to disappoint (other than myself).*(The only subjects I really enjoyed were the creative ones - Art and English (composition) - though I kind of enjoyed Chemistry too, simply because I liked messing around with chemicals. Perhaps surprisingly, I didn't enjoy physics lessons that much, for various reasons. Firstly, most of the material just didn't interest me, because it was just too mundane compared to my real interests in more advanced topics like relativity and astrophysics. Secondly, most of it was material that I had already taught myself in my own time - e.g. electrical circuit theory. Thirdly, and perhaps most importantly, my physics teacher, Mr Bramall, had made it plain on numerous occasions that he just didn't like me, and so I felt quite uncomfortable being in the same room with him. Maybe he felt threatened or insulted by this cocky know-it-all who found his lessons boring, or maybe he was just exasperated and despairing at my truancy and general lack of effort because he saw it as me wasting the intellectual gifts he probably knew I had. (He once ejected me from a lesson on the practical uses of the cathode ray oscilloscope on the grounds that I had missed the previous lesson on the theory of the same (I'd been playing truant again). So I thought 'I'll show him!' and that evening I wrote a 25-page report on the theory and applications of the cathode ray oscilloscope, complete with neat diagrams and relevant formulae. I was able to do this because, unbeknownst to Mr Bramall, I actually had a cathode ray oscilloscope (a Daystrom Heathkit 1012U) in my home electronics lab which I had bought off a friend of Andrew Silman who ran a TV repair shop. I handed the report in the next day knowing that he would have to give me full marks, even though doing so would probably make him snap his marking pen with rage (which was partly the intention, of course - I wanted payback for the humiliating way he had treated me in class the previous day). It was duly marked "A+++++, What a clever boy you are!" (Now, call me paranoid, but I suspect he was being just a tad snarky....) I sometimes feel a little guilty for having been such a pain in the arse; he was only trying to do his job, after all, and my uncooperativeness must have been very frustrating. But he also had poor anger-management skills and a short fuse and sometimes vented that frustration in ways that would probably have led to a professional reprimand in the more child-centric and supportive environment of a modern-day school... )[3] It was also Andrew - an electronics hobbyist like me and a fan of all things radio - who, in the year following my father's death, introduced me to the BBC Radio 4 drama series 'The Hitchhiker's Guide to the Galaxy', the highly original and hilarious sci-fi comedy creation of the late, great Douglas Adams, which did a lot to lift my spirits and bring me out of my shell again. I will always be grateful to him - and to Douglas Adams - for that gift. (I met Douglas Adams in person at a book signing in London a couple of years later, and used to have autographed copies of his Hitchhiker books - until they were all stolen at a student house party a few years later :o( (they are probably worth quite a bit of money now...))[4] There was a lot of snobbery (much of it undeserved) from universities regarding the supposedly inferior status of polytechnics back then - although the artificial distinction between them was finally removed when all polytechnics (including Middlesex) were later turned into universities.[5] Though U.E.A. is not in the Russell Group of British universities (the UK equivalent of American Ivy League universities), it is ranked in the top 1% of all universities in the world, is a world-renowned research university, particularly in biology and climate science, and recently ranked number 14 out of all the universities in the country, which is not too shabby (especially considering that some British universities that scored above U.E.A. also ranked in the top ten in the entire world). It was also recently rated the best university in the country in terms of various measures of 'student satisfaction' - quality of life, accommodation, amenities, academic teaching, etc. (But, hey, I could have told them that...). Its main campus, Earlham Park, has also won awards for its bold and imaginative modern architecture. University of East Anglia. Incidentally, the motto of U.E.A is 'Do Different'*, which I think is particularly fitting in my own case. I certainly 'did different' in my teenage years, and have been somewhat unconventional my entire adult life, too :o)*This is punchy and unambiguous, but arguably ungrammatical (because ‘different’ is an adjective, not an adverb), which is probably why it was later changed to ‘Do Differently’.