Vishal Mega Mart IPO: A closer look at retail firm’s Rs 8,000 crore offering

Vishal Mega Mart’s much-awaited Rs 8,000 crore IPO is set to hit the primary market this week. The offer, entirely an Offer for Sale (OFS), opens for subscription on December 11 and closes on December 13, allowing retail and institutional investors to own a piece of one of India’s largest value retail chains.

IPO details and pricing

The price band for the IPO has been fixed at Rs 74–78 per share, with investors required to bid for a minimum lot size of 190 shares, translating to an investment starting at Rs 14,820. As an OFS, the proceeds from this issue will go to existing shareholders and not the company.

Key risk factors to consider

1. Dependence on third-party vendors
   Vishal Mega Mart relies entirely on third-party vendors for its product supply, exposing it to risks like cost fluctuations, delays, and disruptions. In the first half of FY24, the company worked with 781 vendors, up from 769 in the same period last year.

2. Concentration of revenue
   The company derives a significant portion of its revenue from stores in Uttar Pradesh, Karnataka, and Assam. Together, these states contributed 36.3 per cent of Vishal Mega Mart’s revenue for H1 FY24. Any economic slowdown or political unrest in these regions could adversely affect operations.

3. Legal and regulatory challenges
   Vishal Mega Mart and its subsidiaries face multiple litigations, including one criminal case, 16 tax proceedings, and over 200 regulatory matters. These ongoing issues could potentially impact its financial stability and reputation.

4. Enforcement Directorate directives
   The company has received two directives from the Enforcement Directorate related to foreign direct investments and historical business structures. Any adverse findings could lead to further investigations.

Seasonal and competitive pressures

Vishal Mega Mart’s operations are heavily influenced by seasonal demand, especially during festive periods, which could lead to quarterly revenue fluctuations. Additionally, competition in the value retail segment remains intense, with the company needing to balance pricing, inventory, and margins.

Outlook

While the IPO presents an opportunity to invest in a prominent retail brand, potential investors should weigh the risks carefully, especially those tied to vendor dependencies, geographic revenue concentration, and regulatory scrutiny.