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One stop destination for middle and lower-middle income India:

Vishal Mega Mart Ltd (VMML) serves aspirational retail needs of the growing middle and lower middle-income population in India which is expected to grow at 9% CAGR to ?104-112tn by CY28 (source: Redseer report). Apparels account for ~45% of sales mix, followed by General merchandize (28%) and FMCG (27%). ~75% of the sales mix is skewed towards higher gross margin categories, which helped VMML to consistently deliver double-digit SSSG across categories. It owns 26 brands, accounting for 74% of sales, with revenue from 6 brands at Rs.5b+ and 19 brands at Rs.1b+.

Expansion of Pan-India Store Network:

VMML has a widespread network in Tier 1(30%) and Tier 2(70%) cities in India, with 645 stores as of Sept’24. 43% is concentrated in Northern states, followed by 29% in eastern/ north-eastern states. VMML plans to open 90-100 stores annually, with visibility of opening ~1,400 stores over next 15 years. New stores will be a mix of i) increasing presence in tier 1 cities (200-250 stores), ii) foraying in 17 tier1 towns, where it is currently not present (~200 stores) and iii) expanding into new tier2+ towns (~900 stores). Next phase of expansion will focus on entry into Kerala, Gujarat, Maharashtra and Tamil Nadu.

Expansion of quick commerce Offering:

VMML has enabled 600 of its stores for hyperlocal deliveries in 2hours within 8-10km radius. The contribution from online channel is currently negligible, but initial signs have been encouraging, with top up purchases happening through online.

Strong Financials:

VMML’s revenue/EBITDA/PAT grew robustly at 26%/ 25%/51% CAGR over FY22-24. EBITDA margin is higher at ~14% vs ~8% for D-Mart, largely on account of higher share of apparels. It further expect margin to improve as operating leverage sets in. Its avg. payback period/store for new stores during FY23 was 19 months, the shortest among leading offline-first diversified retailers in India, mainly because all its stores are operated on a leasehold basis.

Issue Size and Objects:

Rs.80 bn IPO comprises entirely of an offer for sale. The promoter selling shareholder, Samayat Services (Kedaara Capital) will be offloading ~23% of its holding, reducing its stake to 76% post-IPO.

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VMML, the 2nd largest offline-first diversified retailer, is well placed to capitalize on the growing middle class population in India. Extensive expansion plans along with focus on diversification, high margin products and operating leverage is likely to bolster revenue growth. At Rs.78, issue is priced at 76x FY24 P/E and looks reasonable compared to other listed peers. We recommend investors to ‘Subscribe’ to the issue.

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