Vishal Mega Mart gets new 'buy' from JM Financial; stock to see 21% upside

JM Financial assigned a target price of ₹175 per share for Vishal Mega Mart and said that it is one of the leading offline-first diversified retailers in India

JM Financial initiated a 'Buy' coverage at Vishal Mega Mart Ltd. (VMM) stock, citing a potential gain in its market share, particularly in Tier-2 and beyond towns. Analysts believe that VMM is one of the leading offline-first diversified retailers in India. 

 

The brokerage assigned a target price of ₹175 per share to the VMM shares, an upside of 21.5 per cent from Friday's close. JM Financial noted that the Indian retail market, valued at ₹76 trillion in calendar year 2023 (CY23), is expected to grow at a 9 per cent CAGR over CY23-28 to ₹116-124 trillion. 

 

Organised retail is projected to grow faster, at around 20 per cent CAGR, increasing its share of the overall market from 20 per cent in CY23 to 30-32 per cent by CY28. The shift toward organised retail will be driven by better products at affordable prices, brandisation, superior customer experience, and investment in retail infrastructure, it said. 

 

Growth is expected to be even stronger in Tier-2 and beyond regions, at a CAGR of 32 per cent over CY23-28. JM Financial said VMM will be a key beneficiary of this evolving industry structure, as it primarily serves the aspirational retail market, which comprises 90-95 per cent of the total market. 

 

The firm highlighted that VMM's well-diversified portfolio enables it to achieve a gross margin of 28 per cent. Its automated and integrated supply chain and replenishment system allows the company to operate with lean inventory, boosting overall return ratios. JM Financial added that this combination, resulting from strong execution and multi-year experience in the value retail space, constitutes a robust moat.

 

The scale and quality at which VMM operates have been gradually built over time and would require significant investment, effort, and time to replicate, serving as a strong competitive advantage, JM Financial said. "We expect gradual expansion in gross margin led by improvement in category mix and higher private label share."

 

JM Financial noted that the company currently has a small presence in high-per capita states such as Maharashtra, Gujarat, Tamil Nadu, and Kerala, offering significant expansion potential. The firm sees store expansion opportunities on two fronts: entering new cities and towns where it currently has no presence, and densifying its footprint in existing locations.  ALSO READ | Eternal shares rise 2% after HSBC raises target, keeps Swiggy at 'Hold'

Vishal Mega Mart share price history

The diversified retail company, Vishal Mega Mart stock rose as much as 1.49 per cent during the day to ₹146.1 per share, the biggest intraday rise since September 19 this year. The VMM stock pared gains to trade 0.3 per cent higher at ₹144.3 apiece, compared to a 0.44 per cent advance in Nifty 50 as of 10:43 AM. 

 

Shares of Vishal Mega Mart snapped a three-day losing streak. The counter has risen 35 per cent this year, compared to a 4.5 per cent advance in the benchmark Nifty 50. VMM has a total market capitalisation of ₹67,146.60 crore.