Vishal Mega Mart Ltd. (May Subscribe)

Highlights

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Vishal Mega Mart Limited (VMML) incorporated on 2018, offers a diverse range of merchandise through their portfolio of own brands and third-party brands to fulfil the aspirational and daily needs of consumers. They offer products across three major product categories, i.e., apparel, general merchandise and fast-moving consumer goods, through a pan-India network of 626 Vishal Mega Mart stores, Vishal Mega Mart mobile application and their website.

VMML targets middle and lower middle-income group in India, serving as a comprehensive one-stop destination for their needs. The company’s product assortment and consumer-centric approach aims to fulfil the daily and aspirational requirements of their consumers with a focus on variety, affordability, quality and convenience.

The company operates a hub and spoke distribution model to source products and manage their in-store inventory. For their apparel category, in particular, their distribution capabilities enabled them to replenish the store inventory in quick response to latest fashion trends and store level sales.

They have an asset-light business model with all distribution centres and stores leased, and their products manufactured by third-party vendors or sourced from third party brands.  Two of their stores operate under third-party franchise agreements and they have not closed any stores that operate under third-party franchise agreements during the Financial Years 2024, 2023 and 2022.

Out of the total proceeds of Rs. 80,000 mn, entire Rs. 80,000 mn would go to towards existing selling shareholders of the company. Since the Offer is an offer for sale, VMML will not receive any proceeds from the Offer.

Key Highlights

• The total addressable market (TAM) for aspirational retail in India is Rs. 68-72 trillion for CY23, and is expected to be Rs. 104-112 trillion CY28, growing at a CAGR of 9 pct. Within the aspirational retail market, there has been a consistent shift towards organized retail primarily due to increasing baselines for quality, availability of wider assortment, better pricing especially in fast-moving consumer goods, denser urban areas, and large whitespace for organized retailers in aspirational retail.
• Their consumer-centric approach has helped them to build consumer trust and appeal, and a large consumer base. They have a loyalty program where customers earn rewards on the purchases. These rewards can be redeemed for discounts or other benefits once the prescribed rewards are accumulated within a defined period. The program allows them to create targeted promotions, such as additional points or special offers, to boost customer engagement.
• The company has a large community of vendors whom they engage for the manufacturing of the products which VMML sells under their own brands. They endeavour to ensure consistency of design and quality of products through stringent quality assurance processes.
• VMML has a new store selection methodology that considers factors such as population, market density, proximity to consumers, and accessibility by road, with parking facilities, among others. Their stores have an average floor area ranging around 18,000 square feet, and all their stores are operated on a leasehold basis, this model allows them to roll out new stores with optimal upfront investment and deliver short payback periods of ~19 months on per store investment.
• VMML aim to continue to expand their store footprint to cities and towns having a population exceeding 50,000 and they continue to enhance penetration within their existing cities and towns.
• VMML key strategies includes (i) Expand their Pan-India store network (ii) Drive same-store sales growth (SSGR) through multiple initiatives (iii) Commitment to consumer centricity: Aspirational, Affordable and Accessible (iv) Driving cost efficiencies across their operations.
• Sales of the company has grown by 26.28 pct YoY over FY22-24 and EBITDA and Profit grew by 24.64 pct and 50.92 pct over same period. During FY24, the sales of the company jumped by 17.48 pct YoY to Rs. 89,119 mn. While EBITDA of the company grew by 22.35 pct YoY to Rs. 12,486 mn and EBITDA margin expanded by 56 bps to 14.01 pct in FY24. During FY24, the company reported profit of Rs. 4,619 mn, which grew 43.78 pct YoY.

Key Risks

• VMML business is subject to seasonality, which may contribute to fluctuations in the results of operations.
• VMML has received two directives with requests for information from the Enforcement Directorate to furnish information and documents as part of its investigation and any possible penalties/action. Any adverse outcome in such matters may lead to future inquiries or escalate to investigations, legal proceedings or any possible penalties.

Financial Performance

Peer Comparison Based on FY24

Vishal Mega Mart Limited is a one-stop destination for middle and lower-middle income in India. With an aim to expand in different cities and rising middle- and lower-income group would drive VMML’s growth. Based on FY25 annualized earnings, the issue is quoting at PE of 69x. Thus, the issue appears fully priced. Only long-term investors can Subscribe, rest may Avoid.

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