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Background

Vishal Mega Mart Limited (VMML) is a prominent player in India’s retail sector operating over 645 stores across India offering a variety of apparel and FMCG products catering primarily to the middle and lower middle income consumers. Unlike competitors like DMart, which focuses heavily on FMCG, VMML derives over 50% of its revenue from in-house brands, enabling competitive pricing strategies. Co’s strengths position it well within the rapidly expanding Indian retail market, allowing it to capitalize on emerging opportunities while effectively serving its target consumers.

Objects and Details of the Issue:

Book built issue of Rs 8,000.00 cr, entirely an offer for sale of 102.6 cr shares.

Investment Rationale

Focus in non-Metro markets–

VMML focuses on affordability and quality which resonates well with its price-sensitive consumers. Unlike many competitors that primarily target metropolitan areas, VMML strategically focuses on smaller cities and rural markets.

Asset-Light Business Model:

By leasing distribution centers and stores rather than owning them outright, the Co minimizes capex. This asset-light approach allows the Co to focus on operational efficiency and flexibility in scaling its operations.

Robust Supply chain with technology integration:

VMML has developed an efficient supply chain that ensures timely product availability and effective inventory management. It also employs technology in its operations, including a mobile app and website for online shopping streamlining smooth inventory control systems.

Good Financial Performance:

Revenues of VMML have grown at a CAGR of 26.3% to Rs.8912 cr during FY22-24. Compared to peers, EBIDTA margins of the Co are better at 14% against 9% of Dmart and 8% of Reliance Retail. Same Store Sales growth also is ahead than peers at 14%.

Valuations:

VMML is one of the largest organized retail players having large presence in tier-2 and tier-3 Indian towns in India. Aggressive store expansion plans with thrust for both online and offline channels bodes well for the company to drive same store sales growth in the coming years. At the upper price band, the stock is available at 26x its annualized FY2025 EV/ EBIDTA, which is at a discount to close peers and large retailers in the value retail space and thus we recommend ‘Subscribe’ to the issue.

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SEBI Registration number is INH000001766