Vishal Mega Mart plans quick commerce rollout, CEO says well-funded for expansion

Vishal Mega Mart also has 19 own brands with sales exceeding Rs 100 crore each, including six brands surpassing Rs 500 crore in annual sales.

The Rs 8,000 crore IPO of Vishal Mega Mart is open for subscription with the company seeing strong institutional interest, raising Rs 2,400 crore via the anchor book. The retailer has also hopped on to the quick commerce band wagon after testing a pilot last year, and is rolling out under two-hour delivery at no extra charge, provided the order exceeds Rs 300.

The company is present in the fast fashion retail segment with focus on young buyers, and said that it is making strong progress in the category. The retailer saw double-digit same-store sales growth at 13.6% last year. In an interview with Moneycontrol, Gunender Kapur, Managing Director & Chief Executive Officer of Vishal Mega Mart shared insights into company’s growth strategy, expansion plans, and financial performance. Here is an edited excerpt from the interview.

Q: The IPO has received a strong response from marquee investors. Why did you decide to approach the market now?

A: We don’t require any primary funding as we are a debt-free company with a robust financial position, including Rs 700 crore in cash reserves on our balance sheet. These resources are more than sufficient to support our future growth plans.

As you noted, our private equity investors currently hold around 97-98 percent of the company. Post-dilution, their stake will reduce to approximately 76-77 percent, but they will remain promoters with a long-term commitment to the business. Our investors, who have been with us for over six years, are highly optimistic about the company’s future.

The primary objective of this IPO is to take the company public. The dilution is intentionally limited, as there are no other underlying goals driving this decision.

Q: Can you elaborate on the contribution of your private brands. Are there plans to launch additional brands? How many are currently in the pipeline?

A: We currently have 19 own brands with sales exceeding Rs 100 crore each, including six brands surpassing Rs 500 crore. The contribution of our private brands has consistently grown over the years.

Looking ahead, our core ambition remains to make the aspirations of India’s middle- and lower-middle-income groups affordable. We rigorously track consumer aspirations and deploy our own brands to meet these needs at accessible price points. This approach has been central to our business strategy, and we will continue to focus on it in the future.

Q: You derive close to 38% of sales from three states—Uttar Pradesh, Karnataka and Assam. Which other regions are you are exploring to expand your footprint?

A: We are currently present in 30 states and union territories, with the goal of achieving nationwide coverage. At present, Tamil Nadu, Gujarat, and Maharashtra are the only states where we are not yet operating. However, we are actively expanding in Kerala and are very optimistic about the growth opportunities ahead.

As for Maharashtra, our expansion plans are focused on creating a pan-India presence, and entering the state is certainly aligned with that vision.

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Q: How has same-store sales growth panned out? Are there targets for improving sales per square foot?

A: Here are a few key numbers I can share: Last year, our same-store sales growth was 13.6 percent, with double-digit growth across all three of our key businesses—clothing, general merchandise, and FMCG. In the recently concluded first half of this year, we continued to see double-digit growth across all these segments. As our same-store sales grow at double digits, our average revenue per square foot is also increasing at the same rate.

Q: What are your store expansion plans for the next few years?

A: We are very excited about the ongoing opportunity to expand across the country, and this remains a continuous work in progress. While we are optimistic about the future, I cannot provide a specific ballpark figure for scaling up at this stage. However, we are focused on steady and sustained growth.

Q: The margin picture across FY22 to FY24 has been in the 14 percent range, are you comfortable with this and would you want to scale it up to somewhere around 18-19 percent, is that doable and how are you placed in terms of gross margins?

A: To address that conceptually, our general gross margin is in the range of 27-28 percent, and our goal is to maintain it at this level. Regarding EBITDA and PAT, if we continue to achieve double-digit same-store sales growth while keeping cost increases to a lower range of 5-6-7 percent, we would benefit from operating leverage, which would positively impact our bottom line.

As for profitability and revenue growth, we’ve seen a nearly 50 percent CAGR from FY22 to FY24, with the top line growing at over 25 percent CAGR. We expect this growth trajectory to continue.

Read More: Vishal Mega Mart IPO - Can this value-focused retailer create wealth for investors?

Q: You’ve entered the quick commerce space. What is your strategy in this competitive segment given the likes of Swiggy and Zomato already have a cemented position?

A: We launched this pilot last year as a differentiated offering for our customers. It operates within an 8-10 km radius of our stores, and when you log into our app, the nearest Vishal store is automatically tagged to you. You can view that store's inventory, and if you choose to place and order, we can deliver it to you within 2 hours at no delivery charge, provided the order exceeds Rs 300.

As you mentioned, we received a positive early response to this pilot, and we are now rolling out this service to other stores. Currently, we are present in approximately 390 cities, and we continue to expand this offering.

Q: The competition landscape is certainly strong, with formidable players like V2 Retail, Bazaar, and Trent, all of whom have grown at an impressive rate. In this context, how do you see yourself positioned, and have you felt the need to adjust your price points to stay competitive?

A: We are a fast fashion retailer, and our primary focus is on young consumers, which aligns well with India’s demographic, as nearly 65 percent of the population is young. This presents a significant opportunity, and as reflected in our historical same-store sales growth, we are making strong progress in this space. Our pricing strategy ensures that fast fashion remains affordable for young people, and we will continue to prioritise this in the future.

Q: In terms of return ratios, you have delivered, high single digits 9 percent in FY24. As a shareholder, what can one expect over the next couple of years?

A: We are excited to onboard long-term investors into our business and believe it will be a rewarding journey for them. As for whether they can expect double-digit returns on equity, I’m unable to comment on that in specific terms, as you can appreciate.

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