Vishal Mega Mart to ramp up store launches after ₹8,000 crore IPO | Company Business News

Kedaara-backed value retailer Vishal Mega Mart, which is set to roll out a ₹8,000 crore public listing next week, will ramp up store launches in the coming years as it enters new markets and expands in existing ones.

The Gurugram-based company is looking to open 90-100 stores every year from the current rate of 60-80, its managing director and chief executive officer Gunender Kapur told Mint on Friday.

“Our ambition to increase the pace of store openings is for two reasons. Firstly, we have enough and more financial resources to fast-track our growth. Secondly, the performance of our new stores has been very good. Our store capex payback is 19 months, the shortest in Indian retail,” Kapur said.

The company’s return on capital employed was around 71% last year, offering confidence to accelerate new-store rollouts, Kapur added. The retailer that sells apparel, fast-moving consumer goods (FMCG) as well as general merchandise operates a network of 645 stores.

Vishal Mega Mart’s initial public offering (IPO) will open for subscription on 11 December and close on 13 December at a price band of ₹74-78. The IPO consists entirely of an offer for sale (OFS) amounting to ₹8,000 crore by promoter Samayat Services Llp, which holds a 96.46% stake in Vishal Mega Mart, with no fresh issue of equity shares. Samayat Services’ shareholding will be reduced to about 76% in the listing.

“It is not that they [Samayat Services] are exiting the business. They will continue to be promoters for the long term and as and when they exit or dilute their stake further, it will be done in an orderly and transparent fashion,” the chief executive said.

The company is sitting on a cash pile of ₹700 crore, which is sufficient for future growth, according to Kapur. Vishal Mega Mart is owned by Switzerland’s Partners Group and India’s Kedaara Capital. The two private equity firms had acquired it from TPG and Shriram Group for $350 million in 2018.

Private labels for the win

According to Kapur, all of its core categories (general merchandise, apparel and FMCG) witnessed double-digit same-store sales growth, thanks to strong uptake in its private labels, which currently contribute 74% of the firm’s overall revenue.

It sells private labels for men, women, children and infants in the apparel category, apart from household and home furnishings, travel accessories, kitchen appliances, and lifestyle products in the general merchandise product category.

“These private brands have been developed specifically to make the aspirations of the middle and low-middle income group India affordable. And this is a continuous process,” Kapur noted.

During the financial year ended March 2024, 19 of the company’s own brands recorded sales exceeding ₹100 crore each, with six showing sales exceeding ₹500 crore each, as per the draft red herring prospectus (DRHP) filed with the Securities Exchange Board of India (Sebi).

India’s value retail market, excluding food and grocery, will likely surge to $170 billion by 2026 from $111 billion in FY23, as per a report by Wazir Advisors. This segment is set to grow at a compound annual growth rate (CAGR) of 15% between 2023 and 2026, surpassing the overall retail sector’s expected 10% CAGR, which is projected to reach $1,219 billion by FY26. Apparel leads the value retail category, followed by furniture, beauty and personal care, and footwear.

For Vishal Mega Mart, apparel constitutes 44.61% of its sales, with fast-moving consumer goods such as staples and snacks adding another 27.42%. General merchandise is 27.85% of its sales mix, per the draft prospectus.

The company reported a 17% increase in its revenue from operations to ₹8,911.94 crore in fiscal year 2023-2024 (FY24) against ₹7,586 crore in the year-ago period.

Meanwhile, its profit after tax (PAT) stood at ₹461.93 crore in FY24 as against ₹321.27 crore in FY23. Its operating margin also improved to 14% from 13.45% year-on-year.

Quick commerce

The retailer rolled out slotted deliveries using its network of stores to deliver goods within 2 hours. The service was first launched two years ago and is now available in 391 cities. Expansion plans are underway, Kapur said.

“This platform is quite unique because it is capital efficient. Basically, it operates within a 10 odd kilometers radius of a store. And when you log into our app, you are automatically tagged to the closest Vishal store. Only the inventory of that particular store becomes visible to you,” Kapur explained.

Quick delivery of daily essentials has become the next big thing in urban markets with online and offline players ramping up speed of deliveries. 

Vishal Mega Mart is seeing good response in small towns, especially in the northeast region, Kapur said, adding that the service is designed for users who wish to do top-up or emergency shopping.

Consumption in urban India has been slowing down. This is especially true for discretionary products such as clothing. Several listed consumer goods makers in recent months pointed to a slowdown in urban markets as high inflation continues to squeeze households.

“The slowdown is pretty evident right now. How this will pan out will depend on the capex plans of the private and the public sector and the government to some extent. It will also depend on how the inflation numbers move going forward. So, [it is] difficult for us to speculate on that. All that I would say is that we hope that the demand picks up as it was,” Kapur said.