IPO Size: Rs. 8,000 cr 

• Entirely Offer for Sale (OFS) by the promoter (99% stake to reduce to 76%)

Price band: Rs. 74-78 per share

M cap: Rs. 35,168 cr, implying 23% dilution

IPO Date: Wed 11^th Dec to Fri 13^th Dec 2024, Listing: Wed 18^th Dec 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Offline Value Retailer for Semi-Urban India

Vishal Mega Mart operates 646 hyper-market format stores, pan-India, 70% of which are located in tier 2 and beyond towns. Targeting middle income group shoppers, average order value is ~Rs. 950. Rs. 10,000 cr annual revenue is split between apparel, FMCG and general merchandise in 45:27:28 ratio.

Encouraging Growth

Vishal Mega Mart’s topline doubled in past 3 years and net profit almost tripled since FY22, partly aided by close to 13% same store sales growth (SSSG), higher than Avenue Supermarts-run DMart’s 10%.

FY24 revenue stood at Rs. 8,912 cr, with PAT of Rs.462 cr, while H1FY25 revenue rose 19% YoY to Rs. 5,033 cr, with PAT up 30% YoY to Rs. 254 cr. EPS was at Re.1 and 55 paise for FY24 and H1FY25 respectively, against 43 paise for H1FY24.

Healthy Net Margins

As share of private label rose to 73% of revenue in H1FY25, from 70% in FY23, net margins strengthened to 5%, and now rule at similar level of Avenue Supermart’s DMart, which is considered industry-leading.

Strong Growth Outlook

Going forward, company plans to add 80-90 new stores annually, to be funded internally (Rs. 220 cr surplus cash and Rs. 1,100 cr annual cash generation). Store addition is planned in India’s 3 economically-advanced states of Tamil Nadu, Maharashtra and Gujarat, with Uttar Pradesh, Karnataka and Assam being the top 3 revenue generators currently. Store addition pipeline and double digit SSSG takes revenue growth outlook to over 20%.

Room for Upside Exist

As Q3 is the strongest quarter accounting for ~30% of annual topline, FY25E PAT is estimated at about Rs. 600 cr (EPS estimate Rs. 1.35) on expected topline of over Rs. 11,000 cr. M cap of Rs. 35,168 cr discounts the current year expected revenue by a multiple of 3.1x and a PE multiple of 58x. This is lower than both the peers - Avenue (4x and 84x) and Trent (13x and 150x) respectively.  

Vishal’s inventory turn of 6x is healthy vis-à-vis Trent’s 8x and can not be compared to Avenue’s 12x, due to the product mix. Vishal is 1/5^th the size of Avenue, but the former’s profit growth rate is 2.5x of Avenue.

On an absolute basis, Vishal’s IPO valuation multiples may appear steep, but there exists scope for expansion.

A back-of-the-envelope calculation suggests promoters Kedaara Capital and Partners Group are making an IRR of 35% on their 6.5 years old investment, which also demonstrates company’s strong fundamentals.