Vishal Mega Mart shares: 53% upside? What MOFSL's bull case scenario suggests

Motilal Oswal Financial Services Limited (MOFSL) has commenced coverage on Vishal Mega Mart (VMM), one of India's prominent offline-first value retailers. MOFSL has set a target price (TP) of Rs 165, supported by a discounted cash flow (DCF) analysis and favourable market conditions.

MOFSL anticipated a compound annual growth rate (CAGR) of 19 per cent in revenue and 20 per cent in Ebitda from FY25 to FY28. The growth is expected through a 13 per cent CAGR in store additions and consistent double-digit same-store sales growth (SSSG), alongside moderate operating leverage benefits.

Vishal Mega Mart operates 696 stores across 458 cities, primarily in tier 2 and smaller cities. The retailer's well-diversified product mix includes apparel, general merchandise, and fast-moving consumer goods, contributing to its strong market presence. This extensive reach allows Vishal Mega Mart to cater effectively to a broad customer base, the brokerage said.

MOFSL said a debt-free balance sheet and robust cost control measures, are projected to drive a 24 per cent CAGR in profit after tax (PAT). Additionally, Vishal Mega Mart is expected to generate cumulative operating cash flow/free cash flow (OCF/FCF) of Rs 3,200 crore and Rs 2,300 crore, respectively, over FY25-28, facilitating further expansion.

MOFSL emphasises VMM’s competitive edge due to its ownership of opening price points and substantial contributions from its own brands. These factors, combined with a low-cost structure, provide a strong defence against competition from both offline and online retailers.

Despite a 75 per cent increase in stock price since its IPO, MOFSL regards the risk-reward ratio for VMM as attractive, presenting bull and bear case target prices of Rs 210 and Rs 120 per share respectively.

The DCF-implied multiples are noted to be a 4-7 per cent premium compared to VMM's average trading multiples since listing. The base case target price of Rs 165 is based on a 10.5 per cent risk-free rate and a 6.5 per cent terminal growth rate.

"In our Bull case scenario, we assume a 22.5 per cent revenue CAGR over FY25-28E vs 19.3 per cent in our base case. We expect sharper revenue growth to be driven by faster store additions and also higher SSSG (vs 11.5-12 per cent SSSG in our base case). Driven by higher SSSG, we expect the Ebitda margin to improve to 15.2 per cent by FY28 (50bp higher than our base case assumption)," it said.

 Looking ahead, MOFSL projects VMM to sustain its growth trajectory, underpinning its strategic expansions and efficiency enhancements. These initiatives are expected to bolster its market position and drive long-term profitability.