Market analysts believe the Vishal Mega Mart IPO will be the talk of the town during the upcoming IPO season. Given its upward growth potential and commendable business outlook, all eyes are on the Vishal IPO if it is able to generate returns like DMart. In this article, let’s take a closer look at the company’s background, its business structuring, how its finances look, the strategies it employs, and what is it that investors can expect.
A Brief History of Vishal Mega Mart
Vishal Mega Mart started operating in 2010 as Micronet Infra and has transformed in several ways. The company also changed its name from Micronet Infra Pvt Ltd to TPG Wholesale in 2010. In 2016, the company name was renamed to Vishal Mega Mart Private Limited. In 2018, it was taken over by Delhi-based Rishant Wholesale Traders who once again revamped the operations. Presently, it is the majority owner with the help of private equity firm Kedaara Capital which has a large percentage of shares and directly manages the business.
Business Model: Asset-Light And Customer-Centric
Vishal Mega Mart’s clientele mainly comprises of the middle and lower middle class, revamping their stores in places that are accessible to them but ensuring better locations than that of premium retail chains which are available at high end areas. Vishal Mega Mart has been inclined towards smaller tier-2, tier-3 and small cities as opposed to operating in one specific area.
Revenue Streams and Product Segments
Firstly, let’s provide some context into how the segment identifies their revenue. Vishal Mega Mart collects its revenue in three key segments, meaning there are three key arms that the business operates under.
Firstly we have Apparel that generates approximately 43.78 percent of the total revenue collected by the segment. The segment covers third party brands along with personal labels that provide a larger profit margin.
Secondly we have general products which include household goods or tableware. general products account for 28.54 percent of the revenue collected.
Finally, we have FMCG which includes food care products, care items, and cleaning items. In total this segment accounts for 27.46 percent of the overall revenue.
The company primarily works on the Construction enter strategy which positions it perfectly for profitability while allowing for low risk in entry cost. One company that perfectly highlights this model is Vishal Mega Mart. More than 72.86 percent of the total revenue is generated through and with personal labels showcasing the companies strong in house branding.
Geographic Presence and Expansion
Vishal Mega Mart operates 645 stores in India and within the north region they have the largest foothold which accounts for 43 percent of the revenue collected. The major regions and their contribution are as follows :
- East India: 29.12 percent of the overall revenue generated.
- South India: 19 percent of the revenue.
- West India: 8.3 percent of the total revenue.
Using the Indian retail chains as a benchmark they have adopted a lease model for their stores which eliminates the potential risk of heavy investments in property and spreads out the allocation of funds. The average sq foot for a store is 18,000 meters and the payback period is approximately 19 months. The relatively short payback period is a direct reflection of the strong operational efficiencies.
Financial Proficiency and Growth Projections
In contradiction to preconceived notions regarding weaker economics, Vishal Mega Mart has showcased credible financial statements and promising metrics:
Net beneficiaries of creditors.
Revenue consistently growing across the board.
Compound annual growth rate of 272% in private label brands from 2022 to 2024.
The company plans to more than quadruple its cash reserves to ₹700 crore in September 2024, as a part of its cash expansion strategy. The goal is to establish 80-100 new outlets on a yearly basis, starting with Tamil Nadu, Maharashtra, Gujarat and other regions with growth potential.
Digital Growth and Online Sales
Vishal Mega Mart is also increasing its presence in online sales. Its two-hour delivery and free shipping on orders over ₹299 go a long way in improving customer experience and boosting online income, though e-commerce currently accounts for only 0.66 % of total sales.
IPO Information
The Vishal Mega Mart IPO has an issue size of ₹8,000cr, solely through an Offer for Sale (OFS), where existing shareholders cut down their shareholding, and the company does not receive a single rupee.
Key IPO details:
Face Value: The share’s face value is ₹10.
Price Band: The price band will be set from ₹74 to ₹78.
Lot Size: The size of the lot is 190.
Retail Quota: 35%, giving retail customers a slightly higher chance of getting an allotment.
The IPO is open for subscription from December 11 to December 13, 2024. Given the large size and retail-friendly allotment, applicants are encouraged to use several demat accounts in order to increase their chances of allotment.
Let us compare Vishal Mega Mart with DMart
Even though DMart has cemented its spot as a leading player in the retail space, Vishal Mega Mart on the other hand competes primarily on price and operates an asset light model. Its focus on private labels, aggressive expansion of stores, and entry to new regions enhances its chances of growth quite significantly.
Nonetheless, DMart’s operational efficiencies and hold on tier-1 cities are unbeatable. Investors should take these into considerations when assessing the investment potential of Vishal Mega Mart as regards generating DMart-type returns.
Conclusion : Should You apply for the Vishal Mega Mart IPO?
In our opinion, consideration of financial performance metrics along with growth oriented business plans and targeting of unserved parts of the market makes IPO of Vishal Mega mart attractive to retail investors. This is not to say that it will make like DMart and return funds overnight, but it is sure to deliver good returns over time because of the strong business fundamentals and good expansion plans that are in place.
It’s important to remember that if you do wish to apply, it would be best to carry out an assessment of your investment objectives and submit the application through more than one account in order to maximize the chances of receiving an allotment.