Vishal Mega Mart IPO: Analysing the financial performance and peer comparison in organized retail

The IPO of Vishal Mega Mart will open on December 11 and close on December 13, with anchor investors bidding on December 10. This ₹8,000-crore IPO is a complete offer for sale (OFS), where existing promoters will sell their shares. The price band and lot size are yet to be announced, as per the red herring prospectus (RHP).

Organised Retail Industry

Organised retail in India is thriving due to several key drivers. By offering diverse, high-quality products at competitive prices, they cater to consumer needs while fostering trust through transparent pricing. Enhanced consumer experiences, with improved store layouts, ambience, and technological integration, make shopping engaging, especially in Tier-2 cities and beyond.

Their agility and market insights enable them to adapt swiftly to trends, ensuring relevance in offerings. Investments in infrastructure further support their growth, while e-commerce expansion, fuelled by rising internet and smartphone penetration, drives a broad-based shift towards online retailing.

Company profile

Vishal Mega Mart is a retail chain catering to India’s middle- and lower-middle-income consumers, offering a diverse range of products to meet both daily and aspirational needs. It features a mix of in-house and third-party brands across apparel, general merchandise, and FMCG categories.

It operates through 626 stores nationwide (as of June 30, 2024), as well as its mobile app and website, Vishal Mega Mart provides convenience and accessibility. It is ranked among India’s top three offline-first diversified retailers based on retail space as of March 31, 2024.

Financial performance

Vishal Mega Mart delivered strong financial growth over FY22–FY24. Revenue increased from ₹5,588.52 crore in FY22 to ₹8,911.94 crore in FY24, driven by robust sales and consistent same-store growth (13.57% in FY24).

Profit before tax surged by 130% to ₹620.95 crore in FY24, reflecting improved operational efficiencies. EBITDA rose from ₹803.68 crore in FY22 to ₹1,248.60 crore in FY24, with steady margins of around 14%. Additionally, net cash flow from operations improved significantly, reaching ₹829.67 crore in FY24. The company's adjusted Return on Capital Employed was 70.95%.

Business segments

Vishal Mega Mart operates across three main product categories: apparel, fast-moving consumer goods (FMCG), and general merchandise.

For the three months ending June 30, 2024, apparel contributed the largest share, 47.8%, followed by FMCG at 25.3% and general merchandise at 26.8%.

Revenue from all three categories has grown consistently, with financial year 2024 recording ₹88,919 million in sales, up from ₹75,630 million in FY2023 and ₹55,729 million in FY2022. Apparel remains a key driver of growth, while other segments also show robust performance.

Peer-to-Peer comparison for Vishal Mega Mart Ltd

(Source: Vishal Mega Mart DRHP)

Based on the FY2024 data, Vishal Mega Mart shows impressive growth metrics compared to its peers. With a 14% Same-Store Sales Growth, it outperforms Avenue Supermarts. While Reliance Retail experienced a 2% decline in Revenue from Operations per sq. ft., Vishal Mega Mart achieved a 9% increase. In terms of store expansion, Vishal Mega Mart added 54 stores, contributing to a 10% Net Number of Stores CAGR over the past two years. Vishal Mega Mart's performance demonstrates its strong growth momentum in the organized retail sector.

Revenue and profitablity metrics benchmarking for organised retailers

(Source: Vishal Mega Mart DRHP)

Based on the Q1 FY25 data, Vishal Mega Mart demonstrates a strong financial position compared to its peers. The company achieved a gross margin of 28%. This is significantly higher than Avenue Supermarts (16%). However, Trent Limited's higher gross margin can be attributed to its focus on aspirational fashion brands.

Vishal Mega Mart's operating expense margin of 14% is also lower than Avenue Supermarts, indicating efficient cost management. This translates into a higher EBITDA margin of 14% compared to 8% for Reliance Retail and 9% for Avenue Supermarts. The company also achieved a profit margin of 6%, outperforming Reliance Retail with a 4% margin and Avenue Supermarts with a 5% margin. Overall, Vishal Mega Mart's financial performance in Q1 FY2025 showcases its strong profitability and efficient operations compared to its peers in the organized retail sector.

Efficiency and cash-flow metrics benchmarking for organised retailers

(Source: Vishal Mega Mart DRHP)

Based on the FY24 data, Vishal Mega Mart's efficiency and cash flow metrics appear less favourable compared to its peers. The company's inventory turnover ratio of 6 indicates a slower pace of inventory movement compared to Reliance Retail (10), Avenue Supermarts (14), and Trent Limited (8). This suggests that Vishal Mega Mart holds onto its inventory for a longer period, potentially impacting cash flow and increasing storage costs.

Additionally, Vishal Mega Mart's net trade working capital days of 11 are higher than its peers, indicating a longer cycle for converting inventory into cash. This could impact the company's cash flow and ability to invest in growth initiatives.

Overall, while Vishal Mega Mart demonstrates strong financial performance in terms of profitability, its efficiency and cash flow metrics require improvement compared to its peers in the organised retail sector.

Conclusion

Vishal Mega Mart has demonstrated impressive growth and strong profitability, with a solid revenue increase and high EBITDA margins that outperform many peers in the organized retail sector.

However, its efficiency metrics, such as slower inventory turnover and longer working capital cycles, indicate areas where improvements are needed to optimize cash flow and operational effectiveness. For the company to maintain its competitive edge and fully capitalize on its growth potential, addressing these operational challenges will be crucial.