Vishal Megamart IPO..will it be the next DMart.Read here the complete analysis…..

Vishal Mega mart IPO is scheduled on 11Decembe to 13December ,2024,with an estimated total value of Rs.8000 cr which makes it the fourth largest public offering in the year.

As the company is one of the major player in value retail chain,the IPO has created buzz specially comparing it with DMart(Avenue Supermart).

To analyse wether Vishal Mega Mart will achieve the monumental success of DMart we need to delve deeper.

A)Business Model

DMart’s Asset Heavy Model…Its business model is a asset heavy model.DMart It own the store it operates.They generally buy the property in an outer of a town or city which is expanding,at a low price and as the city expands the property value rises.To attaract customer to the outskirts they offer best discounted prices and thus work on thin margin with high volume.This strategy of owning most of the property has paid them well by reducing the long term rental cost and increasing profitability.

Vishal MegaMart ‘s Asset Light Model. Unlike DMart,Vishal Mega Mart works on Asset Light model,most of the properties are taken on lease which results in higher fixed cost ,.Altough it enables quicker expansion,mataining profit margins is a difficult task in this model.It works in more diverse demography in tier-2 and tier 3 cities, caters to customer segment more sensitive to price thereby making it more difficult to get good margin.

B)Market Reach

DMart –Depth Before Breadth

Dmart’s expansion strategy is to cover a certain area which is of high potential, before entering into new area.This cautious expansion not only ensures its operational efficiency as concentration in one geography offers logistic advantage,but also maintains consistant store performance.

Vishal Mega Mart: Breadth over Depth

Vishal Megamart focuses on expanding wide network covering smaller towns.,which are underpenetrated.This on one hand offers significant growth opportunities but offers challeges like logistic difficulties.

C) Financial Health

DMart -A consistent performer.

DMart has consistently delivered good financial result over the years.For the year ended March2024 it reported a revenue of Rs.50789 cr,with Net profit after tax Rs.2536 cr.If we look at the financials every year the profit and revenue has grown.

Vishal Mega Mart- Improving Performer

Vishal Mega Mart has shown improvement in revenue and profit over the years.The revenue for the year ended March 2024 was Rs.8912 cr,with a Net profit after Tax of Rs.462 cr.Although the operating margin of Vishal Megamart is 14% more than DMart ,which has operating margin of 8% ,the revenue is almost 18 % of DMart.

D)IPO Valuation

DMart :An IPO to Remember

DMart debuted in 2017,with an IPO of Rs.1870 crore,and doubled the investor wealth on the day of listing.And after the listing there was no looking back for the share.The IPO price was Rs.299 and it made a high of Rs.5485 in 2024.Thus DMart has created massive wealth for investors.

Vishal Megamart: Big IPO Big Aim.

Vishal Megamart’s IPO is almost four times of the IPO offering of DMart.The target of the Vishal Megamart IPO is Rs.8000 cr ,the proceeds will be utilised for debt repayment and supply chain improvement.

Analysis

Both DMart and Vishal Megamart are strong players in Indian retail space,but they cater to different demographics and operate on distinct models.DMart with its owned retail space model has showcased an ultimate success and has made immense wealth for its shareholders.

The leased space model of Vishal Megamart is yet to show its success.If one analyse deeply the high inventory and low sales growth as compared to Dmart is a concern.The number of stores opened and operated by Vishal Megamart is much more than that of Dmart,but the sales is far below that of Dmart’s.Although the profit margin of Vishal Megamart is fairy above Dmart’s,it needs to work on its store efficiency in terms of sales per store.With the present operating margin if it can scale up its sales,it would really be a wealth creator for its shareholders.

Why Vishal Megamart’s sale is low even if the number of stores are higher than Dmart’s?As on 30th september 2024,Vishal Megamart has 645 stores but Dmarts has 377 stores .General merchandise and Apparel conntributes 72.5% of Vishal Megamart’s sales,whereas Dmarts has this of 23.5 % only in its sales.Grocery,food and other items has lower margin as compared to general merchandise and apparel.Dmarts sales mainly focuses on grocery and food items so it has higher turnover and thinner margin in comparison to Vishal megamart.This is why Dmart has even though lesser number of stores than Vishal Megamart,its turnover is much more than Vishal Megamart.

Many analysts and brokerage house are of the opinion that the valuation of the company is low as compared to its listed peers,therefore they had given a subscribe rating for this IPO,but the negative side is that the total offer is Offer for sale,which means the fund will not go to company but to the shareholders who are selling their stake.

Only time will tell how efficiently Vishal Megamart would grow its sales maintaining its present margin level Investors must take into account DMart’s stability against Vishal’s high potential in this emerging market.

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