• Moderate response expected due to large offering size
• Targets 30x EBITDA valuation, USD 4.15bn upper-end valuation
• IPO entirely offer for sale by promoter

The festive spirits ahead of Christmas don’t seem to help Vishal Mega Mart, a Delhi-based chain of hypermarkets that opened a USD 944m initial public offering – India’s fourth largest new listing in 2024 – on 11 December. As the hype around the country’s IPO ebbs, investors are closing into fundamentals of listing hopefuls to make sure their monies don’t go down the drain.

“Given its large offering size, a moderate response is expected,” a sector banker said, adding that he expects it to be covered around 3x.

The hypermarkets chain operator was eyeing 30x EBITDA as a good valuation, Kedaara Capital’s Manish Kejriwal mentioned at the AVCJ forum in Hong Kong referencing their listed peers DMart which is trading at 60x EBITDA and Trent which is trading at 100x EBITDA.

At the upper end, the company will be valued at USD 4.15bn, according to terms seen by this news service.

“Anchor investors will not let this go as 14% EBITDA margin in retail is not easy to find in India,” said another sector banker.

Underwriters of Vishal Mega Mart conducted roadshows in Hong Kong and Singapore, and also approached investors from London and New York, a source familiar with the situation said.

Domestic mutual funds, which have been aflush with retail capital, will look to participate in the IPO, a banker not involved in the deal said.

But it’s probably because of this that Vishal Mega may get the investment it deserves. The anchor tranche attracted bids from Government of Singapore, Monetary Authority of Singapore, JP Morgan, Custody Bank of Japan, Nomura, Blackrock, Government Pension Fund Global, Schroder International Selection Fund, HSBC Global, TIMF Holdings, CLSA Global, and Prudential Hong Kong, according to an official disclosure.

Unlike Mumbai-based DMart, a City Super-equivalent, Vishal Mega Mart, owned by Partners Group [SWX:PGHN] and Kedaara, offers groceries at affordable prices, a strategy that works in its favour especially as India’s consumer prices have never stopped increasing.

Year-on-year inflation based on the All India Consumer Price Index (CPI) for October 2024 came in at 6.2%, while corresponding inflation rates for rural and urban areas were 6.68% and 5.62%, respectively, according to official data.

DMart has fallen 8.8% year to date.

India’s retail industry is one of the fastest growing in the world and is a key pillar of the country’s economy, accounting for about 10% of its GDP as the country is projected to become a USD 6trn economy.

As highlighted by this news service, while India is set to close its best IPO year in 2024, deal coverage ratios have fallen recently as foreign institutional investors pulled out of the nation.

Souvik Saha, investment strategist at DSP Asset Managers, said he expects the broader Indian stock markets to remain muted for a few quarters until valuations return to reasonable levels. “Expectations need to be reset,” he said.

Vishal Mega sells a variety of goods, including groceries, electronics, clothing, and household necessities.

Due to its asset-light business model, Vishal Mega Mart leases all of its stores and distribution hubs, and its products are either sourced from third-party companies or manufactured by outside vendors, according to the terms sheet.

By September 30, 2024, its employee-run direct local delivery service had 6.77m registered users and was accessible in 600 outlets in 391 Indian cities.

Vishal Mega has set a price band of INR 74-INR 78 per share for the IPO, according to terms seen by this news service. The IPO is entirely an offer for the sale of shares by existing shareholders. Samayat Services is the promoter-selling shareholder.

The books will be closed on 13 December. Vishal Mega will be listed on 18 December.

Morgan Stanley India, J.P. Morgan India, Kotak Mahindra Capital, ICICI Securities, Jefferies India and Intensive Fiscal Services are jointly running the deal.

Vishal Mega did not respond to an email and phone calls by this news service seeking comments.