Shares of India's Vishal Mega Mart surged 41% in debut trade on Wednesday, giving the budget retailer a valuation of $5.8 billion as investors bet on the company's growth prospects and resilience to challenges faced by larger rivals.
The stock, which listed at 104 rupees on the National Stock Exchange, rose to 110.03 rupees as of 10:25 a.m. IST. It had an offer price of 78 rupees.
Vishal Mega Mart, which sells clothes for as low as 99 rupees (just over $1) and groceries, is a relatively small part of India's $600 billion grocery and supermarket industry, which is dominated by Reliance Retail, DMart and Tata Group's Star Bazaar.
While the bigger companies are struggling with high inflation and a rampant rise of quick-commerce firms, analysts say Vishal Mega Mart is relatively insulated to such challenges.
The company has 70% of its stores in smaller cities where quick commerce is nascent, and also benefits from a rising number of customers in these cities who want to upgrade to branded products.
"While metro cities are seeing a decline in consumption due to inflation, tier 2 and tier 3 cities, especially semi-urban areas, are seeing a rise in demand. Vishal, with most of its stores in smaller cities, stands to benefit from this," said Narendra Solanki, head of fundamental research, investment services at Anand Rathi.
The $943 million IPO drew bids worth $19 billion last week, and was subscribed 27 times. Institutional investors, including the Singapore government and funds of JP Morgan and HSBC, were allotted shares worth about $283 million.
The company did not issue new shares in the IPO. Samayat Services, which held 96.5% stake, reduced its holding by about 22 percentage points.