Mega Mart IPO: What investors need to know about its market entry

In this analysis, we take a closer look at Vishal Mega Mart Ltd and present you with the exclusive IPO details.

About the issue  

Vishal Mega Mart Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.

Objects of the Issue  

Considering that the issue is exclusively an offer for sale, it is crucial to note that the company will not profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed following the number of offered shares they sell as part of the offer.

Promoter holding  

Samayat Services LLP and Kedaara Capital Fund II LLP are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 96.46 per cent in the company.

Company profile  

The company serves as a one-stop destination for middle and lower-middle-income consumers in India, offering a wide range of merchandise through its own brands and third-party products to meet both aspirational and everyday needs. Its asset-light business model relies on leased distribution centres and stores, with products manufactured by third-party vendors or sourced from external brands.

The product range spans three main categories: apparel, general merchandise, and fast-moving consumer goods. This includes clothing, home furnishings, travel accessories, kitchen appliances, food and non-food items, and staples.

As of September 30, 2024, the company operates 645 Vishal Mega Mart stores across India, supported by its mobile app and website. It also maintains one central distribution centre, one primary distribution centre, and 17 regional distribution centres strategically located near key demand areas.

Financials 

The company has consistently delivered robust growth in both revenue and profits over the past few years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of around 26 per cent in revenue and 51 per cent in net profit.  

When annualised, the figures from the H1FY25 indicate a 13 per cent revenue growth and a 10 per cent surge in net profit compared to FY24. The figure could be even higher, given the strong demand for apparel and FMCG products during Q3, a key festive quarter. The company achieved a notable 9 per cent return on equity (RoE) and an outstanding 69 per cent return on capital employed (RoCE) for FY24.

Valuation & Outlook

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 5.94 times, calculated using its Net Asset Value (NAV) of Rs 13.14 as of September 30, 2024. Based on the company's annualized FY25 earnings and fully diluted equity capital, its price-to-earnings (P/E) ratio is 71x.

Despite the aggressive pricing challenges, it remains a relatively affordable investment compared to its listed peers and is delivering decent returns.

Given the company's strong ability to cater to a large and expanding segment of the Indian population, its nationwide presence, a diverse range of brands and product categories, and its solid financial track record - we recommend investors subscribe to the issue with a long-term outlook.