Motilal Oswal retains Buy on Vishal Mega Mart, sees 25% upside; here's why

MOFSL said Vishal Mega Mart's management remains optimistic about sustaining double-digit Same Store Sales Growth on an annual basis for a fairly long period

Vishal Mega Mart's diversified category mix, ownership of opening price points, significant contribution from its own brands, and lean cost structure provide it with a strong moat against intense competition from both offline and online value retailers, according to analysts at Motilal Oswal Financial Services (MOFSL). 

 

The brokerage has maintained a 'Buy' rating on the stock with a revised target price (TP) of ₹170, based on DCF-implied 40x EV/Ebitda and 61x price-to-earnings (PE) based on the December 2027 earnings estimates.

 

On Wednesday, December 17, the stock fell over 2 per cent to hit an intraday low of ₹132.76 on the NSE. Around 12:20 PM, the stock was trading at 134.5, down 1.14 per cent from the previous session's close of ₹136. In comparison, the NSE Nifty50 index fell around 54.95 points or 21 per cent to  25,805.15 levels. 

 

MOFSL said the company's management remains optimistic about sustaining double-digit SSSG (Same Store Sales Growth) on an annual basis for a fairly long period, on the back of a differentiated own brands portfolio, which comprises 75 per cent of the revenue mix. However, quarterly deviation might occur due to a change in the festive season. The company's total market capitalisation stood at ₹62,870.58 crore. 

 

The company has focused on premium offerings in recent years to align with evolving customer aspirations, while staying competitive at entry-level prices by using sourcing efficiencies to improve product quality.

 

According to the brokerage, VMM’s focus on volume-driven growth, use of technology such as warehouse automation and RFID, efficient supply chain costs, and a disciplined cost structure is expected to improve operating leverage and support Ebitda margin expansion.

 

Management highlighted that lower throughput in South India is a function of relatively new stores. However, higher focus on apparel has kept profitability in South India at par with, if not better than, the pan-India average, encouraging the management to step up store expansion across South India.

 

Vishal Mega Mart offers quick commerce (QC) in 460 towns, with its share varying between 2 per cent and 9 per cent of in-store sales, depending on competitive intensity. Management also noted that despite higher FMCG salience and associated delivery costs, its QC offering is largely profitable on a cash basis as AoV at ₹700 is similar to typical in-store sales.

 

MOFSL expects its FY26–28 earnings estimates to remain largely unchanged and projects a CAGR of 20 per cent in revenue, 22 per cent in Ebitda, and 30 per cent in profit after tax over FY25–28, supported by steady store additions, consistent double-digit same-store sales growth, and margin expansion.  Disclaimer:The views expressed by the brokerage/ analyst in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.