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The entire issue of the supermarket stores operator is an Offer For Sale (OFS), which means no proceeds from the issue will go to the company.
Price band for the IPO has been fixed between ₹74 – ₹78 per share.
Potential bidders can bid for one lot of 190 shares and in multiples thereafter. One lot will entail a minimum investment of ₹14,820 per share.
Here are some of the risk factors involved in the IPO that investors should know before subscribing to the issue. These risk factors have been highlighted by Vishal Mega Mart in its Red Herring Prospectus (RHP).
Reliance On Third-Party Vendors
Vishal Mega Mart does not manufacture any of the products sold in their stores and relies entirely on third-party vendors for the same. For the six-month period that ended on September 30, Vishal Mega Mart had 781 such vendors, compared to 769 during the same period last year.
The company has also highlighted multiple risks involving its vendors, which include change in cost of acquisition, ability to enter new agreements, delay in production and added costs, protection of trade secrets, change in business conditions of vendors among others.
Enforcement Directorate Directives
The company talks about receiving two directives from the Enforcement Directorate to furnish information and documents.
The first one was received in February 2021 as part of an investigation under section 37 of the Foreign Exchange Management Act, 1999 to obtain information regarding the pre-merger capital structure, shareholding, directors, promoters, and store details opened since 2010-2011.
Another directive was received on December 1 with regards to foreign direct investments made in the company and subsidiaries since its incorporation, business model, step-down investments among other issues.
“Any adverse outcome in such matters may lead to future inquiries or escalate to investigations, legal proceedings or any possible penalties,” the company said.
Store Concentration Impact
Vishal Mega Mart derives a significant portion of its revenue from the sale of its products in stores located in the state of Uttar Pradesh, Karnataka and Assam.
For the first six months that ended on September 30, these three states contributed 36.3% to the overall topline of Vishal Mega Mart, compared to 37.22% during the same six months last year.
Any slowdown in economic activity or unrest in those states can have an impact on the company’s business.
Outstanding Litigations
Vishal Mega Mart, along with its subsidiaries, promoters and directors are involved in certain legal proceedings at different levels of adjudication, according to the RHP.
As per the document, there is one criminal case against the company, along with 16 tax proceedings and 32 statutory or regulatory proceedings.
The subsidiaries have 7 criminal proceedings, 33 tax litigations and 247 statutory proceedings against themselves.
There are also four tax proceedings against the promoters.
Seasonality Factors
Vishal Mega Mart said that it experiences seasonal fluctuations in the sale of products across all three of its product categories, with a higher sales volume associated with the festive sales every year.
Due to these seasonal fluctuations, the sales and results of operations may vary by quarters and the results of any given quarter may not be relied upon as indicators of sales or results of operations of other quarters, the company said in its RHP.
Some other risk factors highlighted in the RHP include:
- Disruption in transportation services provided by third parties may impact operations.
- The company has made investments into its Subsidiaries, and now it depends on its Material Subsidiary, Airplaza Retail Holdings Private Limited, to operate our stores as well as our Vishal Mega Mart website and mobile application.
“If we areunable to exercise control over our Subsidiaries for any reason in the future, our business, results of operations, financial condition and cash flows may be adversely affected,” as per the story.
- May face significant competition from the retail and consumer industries.
- Higher inflation may result in increased costs and lower profits.
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