Motilal Oswal initiated coverage on Vishal Mega Mart with a ‘Buy’ rating and a target price of Rs 165, which implies an upside of 20% from the current market price. The brokerage house picked the company due to its strong strategic positioning, robust financial growth projections, and highly efficient operational model.

Motilal Oswal initiates coverage on Vishal Mega Mart: Unique business model and strong market positioning 

Motilal Oswal sees Vishal Mega Mart as a unique Indian retailer that has built a strong “moat” against intense competition from both offline and online value retailers. 

This uniqueness comes from several key characteristics such as extensive presence in Tier 2 cities, a well-diversified portfolio, and a strong and affordable private brands portfolio.

The retailer has a strong footprint of 696 stores across 458 cities, with approximately 72% of its stores located in Tier 2 cities and beyond.

Plus, the company offers a diversified exposure to key consumption baskets, with apparel accounting for 44% of revenue, and General Merchandise (GM) and Fast-Moving Consumer Goods (FMCG) each contributing around 28%. This multi-category approach differentiates the company from other value retailers who often focus solely on apparel or groceries, expanding Vishal Mega Mart‘s Total Addressable Market (TAM) and its share of customers’ wallets.

Motilal Oswal initiates coverage on Vishal Mega Mart: Robust financial outlook

Motilal Oswal anticipates strong financial performance, forecasting significant growth and healthy profitability. The brokerage expects that the company is likely to achieve a revenue Compound Annual Growth Rate (CAGR) of 19% and an EBITDA CAGR of 20% over FY25-28.

This growth is projected to be driven by a 13% CAGR in store additions, taking the total store count to 1,000 by FY28, alongside consistent double-digit Same-Store Sales Growth (SSSG). 

Given the company’s debt-free balance sheet and strong cost controls, Motilal Oswal expects a 24% net profit CAGR and cumulative Operating Cash Flow (OCF) and Free Cash Flow (FCF) generation of Rs 3,200 crore and Rs 2,300 crore, respectively, over FY25-28. This strong cash flow generation is expected to fund accelerated store expansions.

Motilal Oswal initiates coverage on Vishal Mega Mart: Superior cost leadership 

The company operates with one of the leanest cost structures among Indian retailers, which is a key competitive advantage and contributes significantly to its strong financial performance.

Vishal Mega Mart‘s Cost of Retailing (including rentals) is approximately Rs 150/sq ft per month, which is about 20% lower than its nearest competitor. This is because of its presence in Tier 2 towns, where rentals are lower, economical store operations with fewer staff per square foot, and efficient energy usage.