Vishal Mega Mart IPO Highlights: Key Facts & Investment Insights

Introduction

In this note, we take a quick look at the key highlights of the offering along with a brief overview of the retail industry and industry outlook and deep dive into the company’s financials in comparison to its listed peers.

Key Things to Know
IPO Date	11th Dec – 13th Dec 2024
Price Band	Rs 74-78 per share
Total Issue Size	Rs 8000 crores
Offer for Sale	Rs 8000 crores
Fresh Issue	Rs 0 crores
Post Issue M-cap	Rs. 35,168 crores
QIB quota	50%
Retail quota	35%
NII(HNI) quota	15%

Vishal Mega Mart is a leading Indian retail company serving middle- and lower-middle-income consumers nationwide. The company is dedicated to providing a one-stop shopping experience, emphasizing variety, affordability, quality, and convenience.

By leasing most of its stores and distribution centers, Vishal Mega Mart minimizes upfront capital investments, ensuring operational flexibility for expansion. As of September 30, 2024, the company operates 645 stores strategically located across India, with a strong presence in Tier 2 cities and smaller towns. Complementing its physical retail footprint, the company has also established a digital presence through its website and mobile app.

Vishal Mega Mart’s offerings are categorized into three main segments:

Apparel: Featuring exclusively in-house brands, this segment provides a diverse range of clothing for men, women, children, and infants.
General Merchandise (GM): A mix of own-brand and third-party products catering to various household needs.
Fast-Moving Consumer Goods (FMCG): Includes essential everyday items from both in-house and third-party brands.

This comprehensive approach enables Vishal Mega Mart to meet the diverse needs of its customers, making it a preferred shopping destination.

Before we delve deeper, let’s look at the valuation of the IPO.

Valuation:

Vishal Mega Mart, with a robust network of 645 stores spanning 11.49 million sq. ft., is a key player in India’s value retail segment. The company demonstrates significant growth potential, driven by a revenue CAGR of 26% (FY22–FY24), steady EBITDA margins of 14%, and a well-distributed category mix: Apparel (44%), FMCG (27%), and General Merchandise (29%).

Although its sales per sq. ft. at INR 701 are below industry benchmarks, this aligns with its strategy of targeting middle- and lower-middle-income consumers. A strong Same-Store Sales Growth (SSSG) of 14% highlights operational efficiency and sustained customer demand. The projected valuation metrics—PE of 76x and EV/EBITDA of 29x—underscore its growth trajectory and solid market positioning.

Vishal Mega Mart represents an attractive prospect for long-term investors seeking exposure to India’s growing organized retail market.

Industry Overview

India’s Retail Market: Vast Growth Opportunities

The Indian retail market holds immense potential, with per capita retail spending far below global benchmarks.
At present, India’s per capita retail expenditure is around ₹53,200, markedly lower than the United States at ₹1,016,000 and China at ₹219,000.
Despite steady progress, the retail sector in India remains under-penetrated, offering substantial room for growth and expansion.

The Shift Towards Organized Retail in India

India’s retail landscape is rapidly formalizing, with the organized retail segment expected to grow at a robust CAGR of 20% from CY2023 to CY2028.
This growth is primarily driven by Tier-2 cities and beyond, projected to achieve a CAGR of approximately 32% during the same period. However, growth potential extends beyond these regions.
In Tier-1 cities, where unorganized retail still accounts for 50-55% of the market, substantial opportunities for formalization remain untapped.
As India’s retail sector matures, it is anticipated to evolve toward the structure of developed markets like the United States and China, where organized retail constitutes 85-90% and 50-60% of the market, respectively (as of CY2023).
The adoption of omnichannel strategies is gaining momentum, enabling enhanced consumer engagement and boosting brand perception.

Rising Discretionary Spending: Driving Organized Retail Growth in Tier 2 Cities

As the market matures and essential needs are increasingly fulfilled, discretionary spending is expected to propel the growth of organized retail in Tier 2 cities.
This shift highlights a rising demand for higher-quality products, branded goods, and superior shopping experiences—key strengths of organized retailers.
With their ability to offer diverse product selections, consistent pricing, and integrated omnichannel experiences, organized retailers are strategically positioned to meet the evolving preferences of Tier 2 consumers, accelerating growth and formalization in these markets.

Key Financials

Income Statement (INR Mn)	FY22	FY23	FY24
Revenue	55,885	75,860	89,119
COGS	40,146	55,263	64,461
Gross Profit	15,739	20,597	24,659
Other Operating Expenditure	7,702	10,392	12,173
EBITDA	8,037	10,205	12,486
EBITDA Margin (%)	14.40%	13.50%	14.00%
Other Income	653	329	332
Depreciation	4,056	4,614	5,173
Interest	1,938	1,614	1,435
PBT	2,696	4,305	6,210
Tax	669	1,093	1,590
Profit After Tax (PAT)	2,028	3,213	4,619
PAT Margin (%)	4%	4%	5%
Adjusted EPS	0.45	0.71	1.02
Outstanding Shares (Mn)	4,509	4,509	4,509

Company Positioning

Strengths:

Wide Product Range: Offers a diversified portfolio across Apparel, FMCG, and General Merchandise, catering to varied consumer needs.
Focus on Private Labels: Approximately 70% of sales stem from in-house brands, ensuring higher margins and enhanced quality control.
Efficient Supply Chain: Features hyperlocal delivery systems and rapid stock replenishment, optimizing operations.
Seasoned Leadership: Backed by an experienced management team with deep expertise in retail and consumer markets.
Customer Retention through Loyalty Programs: Drives engagement and boosts repeat purchases.
Flexible Business Model: Operates on an asset-light strategy by leasing stores and distribution centers, minimizing capital expenditures.
Quick Store ROI: Achieves a short store payback period of just 19 months, enhancing financial viability.

Weaknesses:

Regional Revenue Dependence: A large share of revenue is concentrated in just three states—Uttar Pradesh, Karnataka, and Assam—limiting geographic diversification.
Reliance on Price-Sensitive Consumers: With a focus on the lower-income segment, the company’s target audience has constrained discretionary spending, making its revenue highly susceptible to economic fluctuations.

Opportunities:

Transition to Organized Retail: Capitalize on the growing aspirations of India’s middle and lower-middle-income population as they shift from unorganized to organized retail.
Rising Consumption in Tier 2 Cities: With 70% of stores located in Tier 2 and beyond, the company is well-positioned to benefit from increasing retail consumption in these regions.
Geographic Expansion: Opportunity to enter new markets in states like Tamil Nadu, Maharashtra, and Gujarat, broadening its footprint.
Growth via Quick Commerce: Leverage the company’s proprietary quick commerce platform to drive incremental revenue.
Supply Chain Automation: Enhance operational efficiency with automation, exemplified by the fully automated 700,000 sq. ft. warehouse in Haryana.

Threats:

1. Dependence on Consumer Preferences which are constantly evolving. Anticipating and adapting to these changes can be challenging to predict accurately.
2. Inventory Management Challenges in maintaining optimal inventory levels is crucial for retail success. Inaccuracies in forecasting consumer demand or disruptions in the supply chain could lead to excess inventory or stockouts, impacting profitability.
3. Intensifying Competition in The Indian retail market with both organized and unorganized players, including online retailers.
4. The Company has received notices from the Enforcement Directorate (ED) and the Ministry of Corporate Affairs (MCA) requesting information on its ongoing investigation and significant beneficial owners respectively. These matters could impact the company’s reputation and lead to penalties.

Peer Comparison

Particulars	FV per Share (₹)	CMP (₹)	Revenue (₹ Cr)	EPS Basic (₹)	EPS Diluted (₹)	P/E (x)	RoNW (%)	NAV (₹)
Vishal Mega Mart Limited*	10	N.A.	8,911.95	1.02	1.01	N.A.^	8.18%	12.53
Avenue Supermarts Limited	10	3,829.85	50,788.83	38.99	38.93	107.05	13.56%	287.47
Trent Limited	1	6,841.35	12,375.11	41.82	41.82	186.65	39.99%	104.59

Our Take:

The IPO offers an attractive valuation at 76x FY24 PE, making it relatively affordable compared to industry peers and providing a promising opportunity for retail investors. The valuation is further supported by a robust 50% CAGR growth in EPS, which enhances its appeal.