Vishal Mega Mart, which is a rival of popular retail chain DMART, is a hot bet on stock exchanges this week. The stock is currently trading below the Rs 150 bracket but has surged by over 43% from its 52-week low of Rs 96.05 per share.
Brokerage Motilal Oswal recommended a buy as Vishal Mega Mart is a unique retailer with a strong footprint in tier 2 cities and beyond.
Vishal Mega Mart Share Price:
After market hours on July 16th, Vishal Mega Mart shares ended at Rs 137.65 apiece, up 0.44% on the BSE, with a market capitalisation of Rs 64,163.77 crore. The stock is nearing its 52-week high of Rs 140.45 per share, while it has surged by more than 43% from its 52-week low of Rs 96.05 per share.
Why Buy Vishal Mega Mart?
Here are some of the key factors highlighted by Motilal Oswal on Vishal Mega Mart.
Firstly, Vishal Mega Mart is one of India’s largest offline-first value retailers, catering to a population of ~1 billion across the middle- and low-income segments. The company has a strong footprint of 696 stores across 458 cities spanning 30 states and UT, with ~72% of its stores located in tier 2 cities and beyond.
Also, the company is a unique retailer with well-diversified exposure across key consumption baskets-Apparel (44%) and GM & FMCG (both ~28%), which provides an opportunity to increase its share of customers’ wallets.
Not just that, the company has a strong and affordable portfolio of its private brands, which contributes ~73% of its revenue. Its private-labels in FMCG are sourced from reputed vendors such as Indo Nissin, Bikanerwala, and CCL Products and are priced at a significant discount to branded competitors.
In the long term, the tier 2+ towns account for ~74% of India’s retail spends (~INR56t), which remains largely dominated by unorganised retail (~90% share).
However, Motilal’s note also said that rising brand awareness, store expansion by organised retailers, and greater focus on better-quality products have led to a marked shift toward organised, one-stop shopping destinations, even in semi-urban and rural India.
VMM is a play on rising consumption and aspirations in Tier 2 and beyond India. Its well-diversified category mix and the lowest opening price points enable it to serve ~1b middle- and low-income consumers, representing ~INR70t aspirational retail market (as of CY23), it said.
Motilal expects Vishal Mega Mart to post a revenue/EBITDA CAGR of 19%/20%, driven by: 1) ~13% CAGR in store additions, 2) consistent double-digit SSSG, and 3) modest operating leverage benefits. Given VMM’s debt-free balance sheet, robust cost controls, and tight working capital management (~15 days net-working capital), the brokerage expects ~24% PAT CAGR.
“We believe the company’s diversified category mix, ownership of opening price points, significant contribution from its brands, and lean cost structure provide it with a strong moat against intense competition from both offline and online value retailers,” said Motilal’s note.
That being said, Motilal initiated coverage on Vishal Mega Mart. It said, “We initiate coverage on VMM with a BUY rating and a TP of INR165, premised on DCF-implied ~45x Sep’27E pre-IND AS 116 EV/EBITDA (implying ~31x Sep’27E reported EBITDA and ~69x Sep’27E P/E). Our DCF-implied multiples are at ~4-7% premium to VMM’s average trading multiples since the listing.”