JM Financial has initiated coverage of Vishal Mega Mart (VMM) with a ‘Buy’ recommendation and a 12‑month price target of Rs 175. This implies nearly 22%upside for the Vishal Mega Mart share price from current levels. The note frames the company as a high-return, asset‑light, offline‑first retailer positioned to capitalise on the rapid formalisation of retail in India.
The brokerage firm looked at seven principal drivers:
- Store economics
- Private‑label strategy
- Supply‑chain advantage
- Expansion runway
- Financial trajectory
- Valuation
- Risks
Here is a detailed anlsyis of the factors driving JM Financial’s bullish call –
1.JM Financial on Vishal Mega Mart: Secular tailwinds
JM Financial emphasises the sheer scale of India’s retail market and the faster growth of organised retail, especially in Tier‑2 and beyond. The report cites a retail market-sized base of roughly INR 76 trillion in CY23 and projects organised retail to grow materially faster over CY23‑28, driven by rising brand awareness and store expansion into smaller towns. VMM is described as addressing roughly half of this aspirational / mass market through its multi‑category format.
The firm believed that the macro tailwind is not incidental. The firm’s argument is structural formalisation of a large, predominantly unorganised market is the growth engine JM Financial expects VMM to ride. That is the starting premise for the bullish case.
2. JM Financial on Vishal Mega Mart: Margin mix
VMM’s private labels are central to the thesis. The report documented private label contribution at ~73 per cent of revenue in FY25 and notes category concentrations (100% private label share in apparel; ~70% in general merchandise; ~33% in FMCG). The firm highlights 26 owned brands 19 of which crossed Rs 1 billion in sales and argues private labels feed both EDLP (everyday‑low‑price) positioning and higher gross margins.
Why this matters
Private labels compress price elasticity at the same time they expand margin capture. JM Financial presents this as the foundation for sustained higher gross margin versus rivals that are more FMCG‑heavy. The report quantifies this advantage as VMM’s gross margin sits in the high‑20s (around 28%) and is materially above peers that lean heavily on third‑party FMCG.
3. JM Financial on Vishal Mega Mart: Working capital mechanics
The initiation note gives significant weight to VMM’s hub‑and‑spoke logistics, automated replenishment and the vendor arrangements that permit lean inventory. JM Financial documents a large distribution network (one central DC, one DC and 17 regional DCs) and emphasises the proprietary automatic replenishment system which enables daily/near‑daily restocking, tighter assortment control, and lower inventory per square foot. Vendor credit terms and sell‑through triggers are also detailed in the report and support the company’s working capital profile.
The combined effect is an operational flywheel, lower inventory, faster turns, reduced markdowns, and better cash conversion all contributing to higher return on capital. JM Financial frames this as a structural moat.
4. JM Financial on Vishal Mega Mart: Exceptional unit economics
Here the initiation is emphatic and quantitative: VMM’s reported post‑tax store‑level RoCE is ~58%, with a payback period of roughly 21 months. The research note contrasts VMM with large peers such as D’Mart and other value retailers on metrics like total investment per sq. ft., revenue per sq. ft., and EBITDA per sq. ft., showing VMM’s asset‑light investment profile and comparatively minimal cost of retailing per sq. ft.
JM Financial’s point: high returns plus rapid payback materially lower execution risk on expansion and support attractive long‑term ROE if the company can maintain margin mix and replenishment discipline.
5. JM Financial on Vishal Mega Mart: Expansion runway density
The retail major’s current footprint as per the company’s data indicates 717 stores as of June 30. JM Financial also recorded 739 stores as per locator data concentrated in Tier‑2+ markets and, critically, 81% of cities have only a single store. Using this base, JM Financial estimates potential incremental store additions of 1,500 over approximately 15 years and assumes a near‑term cadence of 90–100 stores per year under management guidance. The report calls out under‑penetrated high GDP per capita states (Maharashtra, Gujarat, Tamil Nadu, Kerala) as natural expansion targets.
For investors: the combination of existing presence in many towns and low density per city underpins a credible densification thesis not merely new‑city expansion. The modelling in the note embeds steady SSSG and area growth to arrive at its revenue trajectory.
6. JM Financial on Vishal Mega Mart: Financial runway
JM Financial models a 19% revenue CAGR and 26% EBITDA CAGR for FY25‑FY28, with PAT expanding at 27% CAGR in the same period. The report forecasts steady revenue per sq. ft. improvement and EBITDA margin expansion of 170 basis points by FY28 (pre‑Ind AS basis), yielding improvements on the return on equity.
7. JM Financial on Vishal Mega Mart: Risks acknowledged
JM Financial also listed out key execution risk related to rapid store additions, competitive intensity (from D’Mart and other organised players), and margin pressure if private label share or supply chain benefits erode. The initiation includes standard disclaimers about conflicts, model sensitivity, and valuation assumptions. Importantly, the research team quantifies coverage limits and potential downside scenarios in its risk appendix.
JM Financial builds the case on private label economics, supply‑chain control, and a clearly articulated expansion path, and then models the outcomes. The report makes conservative‑sounding modelling choices but also assumes sustained SSSG and high private label traction.