Sales growth, management continuity positive for Vishal Mega Mart

Double-digit same-store sales growth, expansion plans and margin gains offer support, while promoter stake sales and competitive pressures remain key overhangs

Competitive pressures, the overhang of a stake sale by promoters, and premium valuations have weighed on the stock of retail major Vishal Mega Mart over the past year. These headwinds have led to a 30 per cent drop in the share price of the value retailer. Brokerages, however, are bullish on the retailer’s prospects, given double-digit same-store sales growth (SSSG), its expansion plan, and margin expansion from scale benefits. After the correction, valuations compared with peers have come down to more palatable levels. At the current price, the company is trading at around 40x its 2027-28 earnings estimates.

 

The company outperformed its peers in the first quarter (April-June/Q1) of 2026-27 (FY27), with SSSG growth of 10 per cent compared with 7 per cent reported by peer value retailers. About 7 per cent of the gains came from new customers, while the rest came from higher purchases by existing customers. The retailer was able to support its customers amid high inflation through lower promotional intensity and stable pricing in opening- and mid-price products. The company’s hyperlocal (quick-commerce/qcom) delivery also scaled well, with registered users up 44 per cent year-on-year to 14.1 million.

 

While there could be quarterly volatility due to the festival period or seasonal shifts, the company is aiming for sustained double-digit SSSG for the full year. Growth would be aided by its differentiated private-label strategy and healthy traction in the qcom business, which varies between 2 per cent and 10 per cent of the mix across stores. The company seeks to pursue volume growth even as it maintains leadership in opening- or entry-level price points. Given that sales are at ₹10,000 per square foot for 2025-26, there is headroom for further growth. 

 

Brokerages are positive on the company’s potential to expand both its large- and small-format stores. In the large-format (17,000 square feet) segment, there is potential to add 1,200 stores — 100 a year — over the next 10-12 years. The company is also expanding its small-store format to cater to towns with populations of less than 50,000 in relatively more saturated states such as Uttar Pradesh and Haryana. It added three small-format stores in Q1FY27, taking the total count to 16.

 

While small-format stores are about half the size of regular stores, they deliver comparable revenue per square foot and return on capital employed ratios. The company estimates the long-term opportunity for smaller stores at 4,000 across the country. The company has also started a relatively premium, apparel-only format, Belong & Co., in Delhi, targeting a younger and more affluent consumer base.

 

The retailer is expected to reinvest the gross-margin savings from scale benefits to improve product quality and its price proposition. Motilal Oswal Research remains positive on the company, considering its consistent growth trajectory and potential for margin expansion led by operating leverage. It has reiterated its ‘buy’ rating with a revised target price of ₹135. However, analysts led by Aditya Bansal of the brokerage point out that the stake sale by the promoter, Samayat Services LLP, which is owned by Kedaara Capital and Partners Group, remains a key overhang on the stock’s performance despite the stellar operating performance. The promoters have been reducing their stake from just under 75 per cent after the initial public offering in December 2024 to the current level of 40 per cent.

 

A positive is the continuity of leadership, with the company’s Chief Executive Officer and Managing Director Gunender Kapur getting another five-year extension. This, along with the visibility of the larger management team at the analyst meeting, according to HSBC Research, should allay some investor concerns and drive valuation improvement, assuming the recent strong operational performance continues. While the second quarter (July-September/Q2) of FY27 could see some moderation in performance due to the festival-season shift, analysts led by Nihal Mahesh Jham of the brokerage expect unchanged full-year performance. It has maintained a ‘buy’ rating with a target price of ₹153.