Vishal Mega IPO review (Apply)

•    The company is a one stop destination for middle and lower-middle income customers in India.
•    It posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    With high margin private brand products, it mulls raising its net earnings.
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
Vishal Mega Mart Ltd. (VMML) is a one stop destination for middle and lower-middle income India. It curates a diverse range of merchandize through portfolio of own brands and third party brands to fulfil the aspirational and daily needs of consumers. VMML offers products across three major product categories, i.e., apparel, general merchandise and fast-moving consumer goods, through a Pan-India network of 645 Vishal Mega Mart stores (as of September 30, 2024) and Vishal Mega Mart mobile application and website.

It is ranked among the three leading offline-first diversified retailers in India, based on retail space as of March 31, 2024 (Source: RedSeer Report at page 133). The company is also the fastest-growing leading offline-first diversified retailers in India, based on profit after tax growth between Financial Years 2021 and 2024, and among the two leading offline-first diversified retailers in India in terms of same-store sales growth for Financial Year 2024 (Source: RedSeer Report at page 133 and 132). It targets middle and lower middle-income India. The number of middle income households in India has increased from approximately 201 million in Calendar Year 2018 to approximately 225 million households (approximately 945 million individuals) in Calendar Year 2023, driven by rapid economic development, growing formalization of employment, and a structural shift from an agrarian-based economy towards manufacturing and services (Source: RedSeer Report at page 110).

The aspirational retail market in India, driven by the consumer desire for products that offer both high-quality and affordability, will remain a significant contributor to India's retail market (Source: RedSeer Report at page 117). The total addressable market for aspirational retail in India is Rs. 68-72 trillion (US$820-870 billion) for Calendar Year 2023, and is expected to be Rs. 104-112 trillion (US$1,250-1,350 billion) by Calendar Year 2028, growing at a CAGR of 9% (Source: RedSeer Report at page 135). 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, denser urban areas, and large whitespace for organized retailers in aspirational retail (Source: RedSeer Report at page 122). As of September 30, 2024, it had 645 stores and 16537 employees on its payroll.

According to the management, though currently it is north and eastern region centric player, it has plans to enter in other regions to expand its Pan India presence in coming years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden secondary IPO worth Rs. 8000 cr. (approx. 1025641026 shares at the upper cap). The company has announced a price band of Rs. 74 - Rs. 78 per equity shares. The issue opens for subscription on December 11, 2024, and will close on December 13, 2024. The minimum application to be made is for 190 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.75% of the post-IPO paid-up equity capital. As this is an Offer for Sale, no funds are going to the company. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., ICICI Securities Ltd., Intensive Fiscal Services Pvt. Ltd., Jefferies India Pvt. Ltd., J. P. Morgan India Pvt. Ltd., and Morgan Stanley India Co. Pvt. Ltd., while KFin Technologies Ltd., is the registrar to the issue. Kotak Securities Ltd., and Intensive Softshare Pvt. Ltd. are the syndicate members. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 15.00 - Rs. 15.70 per share, between July 2020 and October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.14 per share. 

Post-IPO, its current paid-up equity capital of Rs. 4508.72 cr. will remain same as this is a pure secondary issue. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 35168.01 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 5653.85 cr. / Rs. 202.77 cr. (FY22), Rs. 7618.89 cr. / Rs. 321.27 cr. (FY23), and Rs. 8945.13 cr. / Rs. 461.94 cr. (FY24). For H1 of FY25 ended on September 2024, it earned a net profit of Rs. 254.14 cr. on a total income of Rs. 5053.42 cr.

For the last three fiscals, the company has posted an average EPS of Rs. 0.82 (basic) and an average RoNW of 6.85%. The issue is priced at a P/BV of 5.94 based on its NAV of Rs. 13.14 as of September 30, 2024, as well as its post-IPO NAV. 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 69.03. Based on FY24 earnings, the P/E stands at 75.73. Thus the issue is aggressively priced. 

The company reported PAT margins of 3.63% (FY22), 4.24% (FY23), 5.18% (FY24), 5.05% (H1-FY25), and RoCE margins of 56.43%, 75.80%, 68.76%, 29.77% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of the offer document. It has already adopted a dividend policy in July 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Avenue Supermarts, and Trent Ltd., as their listed peers. They are trading at a P/E of 92.2, and 183 (as of December 06, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The six BRLMs associated with the offer have handled 78 pubic issues in the past three fiscals, out of which 20 issues closed below the offer price on the listing date.