Vishal Mega Mart IPO Launches Today: Should You Subscribe? Here's What Brokerages Say

Vishal Mega Mart Ltd. is set to launch its initial public offering on Wednesday, aiming to raise up to Rs 8,000 crore through an offer for sale by its promoter, Samayat Services LLP. The price band for the issue has been set between Rs 74 and Rs 78 per share, with the market capitalisation of the company at Rs 35,168 crore at the upper end of the price range.

The issue will close on Dec. 13, 2024. With its focus on serving the middle- and lower-income groups, Vishal Mega Mart offers a range of products including apparel, FMCG, and general merchandise, with an extensive presence across tier-2 cities in India.

Emkay Research presents a positive outlook for Vishal Mega Mart, highlighting the company's strong growth potential within the fast-growing retail market.

The company caters to the middle- and lower-income segments of India, capitalising on the growing demand for affordable retail options. According to Emkay, the company's strategy of offering variety and affordability across multiple product categories—including apparel, FMCG, and general merchandise—gives it a significant competitive edge. Emkay expects the company's retail space to grow at a compounded annual growth rate of around 10%, supported by low teen same-store growth and store additions.

Emkay also notes that the company has delivered strong financial growth with a revenue CAGR of approximately 26% over financial year 2022-2024. Additionally, Vishal Mega Mart’s superior return metrics and low working capital requirements should ensure strong cash flows, enabling further expansion.

Despite this optimistic outlook, Emkay highlights the risk of supply overhang due to large private equity ownership and potential dilution from employee stock options.

Bajaj Broking takes a more cautious approach but recognises the growth prospects of Vishal Mega Mart, recommending the IPO for long-term investors. The company, which operates an asset-light model with leased distribution centers and stores, focuses on the aspirational retail market catering to middle- and lower-middle-income groups.

Bajaj Broking notes the company’s strong track record, with revenues increasing from Rs 5,653 crore in financial year 2022 to Rs 8,945 crore in financial year 2024. Furthermore, the company’s diversified product range—spanning apparel, FMCG, and general merchandise—positions it well to capture growth in India’s expanding retail market.

However, Bajaj Broking also raises concerns over the IPO’s high valuation. At the upper price band of Rs 78, the company is priced at a P/E ratio of 75.73 based on financial year 2024 earnings, which the brokerage views as expensive. Despite this, Bajaj Broking believes Vishal Mega Mart has substantial growth potential, particularly given the shift towards organised retail in Tier-2 cities.

As a result, the brokerage assigns a "Subscribe for Long Term" rating to the IPO, suggesting that investors with a long-term horizon may benefit from the company's growth trajectory.

Deven Choksey’s research on Vishal Mega Mart is also optimistic about the company’s future, with a "Subscribe" recommendation for the IPO. The brokerage points to the company’s rapid expansion, with 645 stores across 414 cities as of September 2024, targeting India’s middle and lower-middle-income segments.

The IPO price band places the company at a market cap of Rs 333,645 crore to Rs 351,680 crore, reflecting potential for growth.

Choksey highlights that Vishal Mega Mart has delivered impressive revenue growth, posting a CAGR of 26% from financial year 2022 to financial year 2024. The company’s business model—focused on a mix of owned brands and third-party products across apparel, FMCG, and general merchandise—positions it well in India’s expanding retail sector. Moreover, Deven Choksey points to the company's robust same-store sales growth (SSSG) of 14% as an indicator of strong consumer demand.

While the brokerage sees significant opportunities for expansion, particularly in Tier-2 cities and through its growing online presence, it also notes the risks associated with intense competition in the retail market and potential regulatory challenges. Overall, Deven Choksey views the IPO as an attractive opportunity for long-term investors, with strong growth prospects driven by India’s expanding retail consumption and Vishal Mega Mart’s operational efficiencies.