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A play on rising aspirations in Tier 2+ India

Vishal Mega Mart (VMM) is one of India’s largest offline-first value retailers, catering to a population of ~1b across the middle- and low-income segments. VMM is a unique Indian retailer with: 1) a strong presence in tier 2+ cities (696 stores in 458 cities); 2) well-diversified exposure to key consumption baskets—Apparel (44%), General Merchandise (GM) & Fast-Moving Consumer Goods (FMCG; both ~28%); 3) a strong and affordable private brands portfolio (73% revenue share); and 4) one of the lowest cost structures in the industry. We believe VMM’s uniqueness provides it with a strong moat against intense competition from both offline and online value retailers. We expect VMM to clock 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 and robust cost controls, we expect ~24% PAT CAGR and cumulative pre-IND-AS OCF/FCF generation of ~INR32b/INR23b over FY25-28. We initiate coverage on VMM with a BUY rating and a TP of INR165, premised on DCFimplied ~45x Sep’27E pre-IND AS 116 EV/EBITDA (implying ~31x Sep’27E reported EBITDA and ~69x Sep’27E P/E).

One-of-a-kind retailer catering to the ~INR70t opportunity

* VMM is one of India’slargest offline-first value retailers, catering to a population of ~1b acrossthe middle- and low-income segments. It serves a substantial market valued at ~INR70t, which is likely to reach ~INR100t+ by CY28.

* It 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.

* VMM is a unique retailer with well-diversified exposure across key consumption baskets—Apparel (44%) and GM & FMCG (both ~28%), that provides an opportunity to increase its share of customers’ wallets.

* VMM 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.

* The company has one of the leanest cost structures among Indian retailers, with a cost of retailing (CoR; including rentals) of ~INR1,800/sq ft (at least 20% lower than its nearest competitor). This enables VMM to offer the most competitive opening price points across several categories.

Long runway for growth in the INR70t aspirational retail industry

* The tier 2+ towns account for ~74% of India’s retail spends (~INR56t), which remains largely dominated by unorganized retail (~90% share).

* However, rising brand awareness, store expansion by organized retailers, and greater focus on better-quality products have led to a marked shift toward organized, 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).

Healthy store economics create room for accelerated store expansions

* VMM’s retail footprint spans 696 stores over 12m sq ft across 458 cities. It operates a big-box retail format, with an average store size of ~17.5k sqft.

* During FY22-24, VMM added ~55 net stores annually. However, the pace of store additions has accelerated, with ~85 net stores added in FY25.

* The company’s efficient working capital management, superior cost controls, and disciplined asset-light approach have enabled strong store economics with ~15% pre-IND-AS EBITDA margin at the store level, over 50% RoCE, and a payback period of less than two years.

* Management has indicated that VMM could potentially add 100 stores annually over the next ~15 years across 50 tier 1 cities and 1,250 tier 2 cities with populations exceeding 50k.

* Given the long runway for growth, strong store economics, and entry into newer territories, we believe the pace of store additions will likely remain elevated over FY26-28, as VMM expands its presence in states such as Tamil Nadu, Gujarat, and Maharashtra.

* Overall, we build in ~13% CAGR in store additions for VMM over FY25-28, taking the total store count to 1,000 by FY28.

Well-diversified portfolio enhances VMM’s TAM and share of wallet

* VMM boasts a well-diversified category mix with over 25% revenue contribution from three major categories—Apparel, FMCG, and GM.

* Comparatively, other value-focused retailers mainly target either apparel (Zudio, V2Retail, Style Baazar, and V-Mart) or grocery (DMart).

* VMM’s diversified category mix makes it a one-stop destination for the entire family, expanding its total addressable market (TAM) and driving higher wallet share among consumers.

* The GM and FMCG sections are typically located on the upper floors of VMM stores. Although these categories have lower gross margins compared to Apparel, they serve as a footfall driver for VMM.

Multi-category, own-brand portfolio acts as a strong moat for VMM

* VMM has successfully established a diverse and expanding portfolio of 26 own brands across key consumption baskets, with revenue contribution from these brands steadily rising to 73% by FY25.

* In FY25, 19 of VMM’s own brands surpassed INR1b in sales, with six brands exceeding INR5b, demonstrating strong brand acceptance. VMM’s own brands typically offer the lowest opening price points, which makes them attractive for value-conscious consumers.

* VMM operates a 100% private label portfolio across men’s, women’s, and kids’ fashion, covering a wide range of categories such as denim, ethnic wear, innerwear, and sportswear.

* The company has significantly expanded its own brand offerings in GM under the ‘Tandem’ brand for home appliances, introducing products such as air fryers, garment steamers, sound bars, and kitchen tools.

* VMM’s private labels account for ~35% of its FMCG revenue and hold ~45% share in categories where they are present. Moreover, the volume share is significantly higher, given the 20-50% price discount vs. leading brands.

Lowest-cost retailer with significant room to improve revenue productivity

* Given VMM’s ownership of opening price points across multiple categories and a high share of own brands in FMCG (typically 20-50% discount), its sales per square foot (SPSF) at ~INR770/month was relatively lower than peers in FY25.

* However, VMM is among the lowest-cost retailers in India, with a monthly CoR (incl. rentals) of ~INR150/sq ft, ~20% discount to its nearest competitor.

* VMM exercises strict control over its working capital, maintaining ~60 days of inventory and ~15 net working capital days, which is significantly better than other value fashion retailers. This efficiency is driven by its diversified category mix and tech-enabled supply chain.

Valuation and view

* We expect VMM 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), we expect ~24% PAT CAGR.

* Over FY25-28, we expect VMM to generate a cumulative OCF/FCF of ~INR32b/ INR23b, which should enable accelerated store expansions.

* We believe the company’s diversified category mix, ownership of opening price points, significant contribution from its own brands, and lean cost structure provide it with a strong moat against intense competition from both offline and online value retailers.

* 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.

* Based on our reverse DCF analysis (10.5% risk-free rate, 6.5% terminal growth rate), our TP of INR165/share implies ~11%/13% revenue/pre-INDAS 116 EBITDA CAGR over FY25-50E, driven by ~115 store additions annually and ~4% CAGR improvement in store productivity.

* Despite strong performance since the listing (up 75% from IPO price), we believe the risk reward remains attractive (bull: INR210/share; bear: INR120/share)

Key risks and concerns

* Dependence on third-party vendors for manufacturing of own brands (73% revenue share)

* Rising competition from other offline and online value retailers

* Inflationary risks and inability to pass on price hikes

* Sales concentration in select states

* Follow-on stake sales from promoters (private equity-backed) and a lack of clarity on long-term ownership

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