Vishal Mega Mart introduced a pilot initiative in the quick commerce sector last year. The platform operates within an 8-10-kilometer radius of each store, allowing users to access the inventory of their nearest outlet via the app.
Currently active in 390 cities across India, the pilot has shown positive results, sparking optimism for further growth, according to Gunender Kapur, MD & CEO of Vishal Mega Mart.
The company’s ₹8,000 crore Initial Public Offering (IPO) is scheduled to open for subscription on December 11. As an Offer for Sale (OFS), the company will not directly benefit from the funds raised. The IPO has set the price range between ₹74 and ₹78 per share, with the subscription window closing on Friday, December 13.
Here is the transcript of the interview:
Q: This is an Offer for Sale (OFS). Why are you entering the market? Is it to raise fresh capital, or is it because the market values well-priced retail businesses, and you see an opportunity to capitalize on that? What is your reasoning?
A: The company has performed exceptionally well. We have zero debt and ₹700 crore on our balance sheet, which gives us ample resources to fund our growth plans. As a result, this move is secondary. Currently, the promoter group, Samayat Services, holds about 98% of the company and is reducing its stake to 77%. They will remain the promoter and are committed to the long-term future of the company, which excites them.
Q: What does the revenue outlook look like? From the numbers, it appears revenues nearly doubled from FY22, reaching around ₹10,000 crore this year. With a compound annual growth rate (CAGR) of 24-25%, can this growth be sustained?
A: I cannot provide specific future projections, but I can discuss the past three years. Our revenue CAGR has been 26%, our EBITDA CAGR has been 24.6%, and our profit after tax (PAT) CAGR has been 50.9%. For the last fiscal year, our return on capital employed (RoCE) was 71%. Additionally, over the past three and a half years, we have generated free cash flow of approximately ₹3,000 crore.
Q: So, broadly speaking, is the answer yes?
A: I’m personally very enthusiastic about the company’s future and remain deeply committed to our mission of serving the middle and lower-middle-income groups in India.
Q: Let’s discuss profitability. You’ve maintained EBITDA margins in the range of 13-15%. Are you satisfied with these margins, or do you foresee opportunities to increase them further? Is 13-15% the target range you aim to work with?
A: Generally, we are comfortable with that range. Our strategy has been to maintain gross margins at their current levels, so we do not rely on price hikes to drive EBITDA growth. This has been our approach over the years. Any growth in profitability will primarily come from operating leverage, which will be reflected in the bottom line.
Q: Regarding your quick commerce initiative, what are your broader plans? While it may be a small part of the business now, it’s an emerging trend. Can you share your strategy for scaling this segment?
A: We launched this as a pilot at the start of last year, and it is quite distinct. It’s a capital-efficient platform. Essentially, it operates within an 8-10-kilometre radius of each store. When you log into the app, you’re automatically connected to the closest Vishal store, where you can view its inventory.
If you place an order, you can choose to have it delivered within two hours. Orders above ₹300 come with free delivery, while smaller orders incur a ₹29 charge. The initial response has been promising. I’m happy to report that we are now active in about 390 cities across India with this pilot, and we are very optimistic about its future.