India's Vishal Mega Mart is planning a $1 billion initial public offering that would value the budget supermarket chain at up to $5 billion with some of the proceeds earmarked to add stores, two people with direct knowledge of the plan said.

Switzerland's Partners Group and India's Kedaara Capital, which together have a majority stake in Vishal Mega Mart, will each sell shares in the offering, said the people, declining to be identified as the discussions were private.

It was not immediately clear exactly how much of Vishal Mega Mart the two private equity firms own, how much they would sell and if they would retain a majority holding.

Vishal Mega Mart Chief Executive Gunender Kapur did not respond to Reuters requests for comment. Kedaara also did not respond while Partners Group declined to comment.

The retailer has 560 stores, mainly in smaller cities, that sell clothes and grocery items. It competes with Indian tycoon Mukesh Ambani's Reliance, Tata Group's Trent and grocery retailer Avenue Supermarts.

Investment banks have been invited to pitch for the IPO this week and the offering is likely to take place later this year, the people said.

The plans come at a time when Indian stock markets are trading near record highs and the benchmark NIFTY index has climbed 12 per cent over the last six months.

Bankers and analysts expect IPO activity in India to gain pace amid rapid economic growth and a stable political environment with Prime Minister Narendra Modi likely to easily win a third term in an election due by May.

Vishal Mega Mart's revenues jumped 36 per cent to 75.9 billion rupees ($917 million) in its last financial year ended March 2023, while net profit surged 60 per cent to 3.2 billion rupees, according to a report by Fitch-owned India Ratings.

India's retail market could be worth $2 trillion by 2033 compared with about $840 billion currently, according to estimates from Boston Consulting Group.

Brick-and-mortar businesses continue to dominate most of the country's retail sector despite the rise of e-commerce platforms like Amazon and at the lower end of the market, consumers are increasingly shifting from roadside unbranded shops to chains.

Vishal Mega Mart, which sells T-shirts from as low as 99 rupees ($1.5) and jeans from $9, gains about half of its sales from apparel, according to the sources. It also sells home appliances and luggage in addition to groceries.

Partners Group and Kedaara acquired Vishal Mega Mart for about $350 million in 2018 from rival buyout firms TPG and India's Shriram Group.

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