ET Intelligence Group: Vishal Mega Mart is an offline-first diversified retail chain focused on middle and lower-middle-income consumers in India. It is launching an initial public offering of Rs 8,000 crore on Wednesday through an offer for sale (OFS).
The public issue is aimed at giving a partial exit to Kedaara Capital, which will dilute the private equity promoter’s stake to 76 per cent from 96.5 per cent. Since it is an OFS, the company will not get any proceeds from the share sale.
Business: The Gurugram-based company runs a network of more than 645 stores across 414 cities, selling apparel, general merchandise and FMCG. It earns about 48 per cent of revenue from apparel, 28 per cent from general merchandise and 23 per cent from FMCG. While FMCG brings in the footfalls, apparel and general merchandise are the more profitable and value-accruing categories for the company. Uttar Pradesh, Karnataka and Assam are the top three contributing states to its overall revenue. The retail chain posted double-digit same-store sales growth across categories in FY24 with a growing portfolio of its own brands. It achieved the majority of sales from its own brands in apparel besides raising the share of its own brands in general merchandise and FMCG segments.
Financials & Growth Prospects: Vishal Mega Mart’s revenue recorded a 26 per cent compounded annual growth rate (CAGR) to Rs 8,911 crore in FY24 from Rs 5,588 crore in FY22. Similarly, net profit rose 51 per cent CAGR to Rs 462 crore in FY24. The Ebitda margin for FY24 stood at 14 per centwith adjusted return on capital employed (ROCE) at 71 .
The company has a track record of profitable and capital-efficient growth. As much as 70 per centof its stores are in tier II cities and beyond, which have low organised retail store densities and where consumers gravitate towards products that are good in quality and functionality while being affordable. With the rising cost of living hurting consumer demand, affordable retail models are likely to gain favour with value-conscious Indian consumers.
Valuation & Risk Factors: At an implied market cap of about Rs 35,168 crore, the IPO values the company at 71 times its annualised earnings for FY25. This is less than the price-to-earnings (PE) multiple of 92 and 137 at which Vishal Mega Mart’s closest-to-compare retail peers Avenue Supermarts (DMart) and Trent are trading, respectively.
Given its presence, scale and target customer base, Vishal Mega Mart’s IPO – while priced aggressively – offers investors an attractive opportunity to capture the growth generated by Bharat’s consumption story.
