Motilal Oswal has initiated coverage on Vishal Mega Mart with a ‘buy’ rating and a target price of Rs 165, implying a potential 20 per cent upside from Tuesday’s closing price of Rs 137. The brokerage sees the value retailer as a “play on rising aspirations in Tier 2+ India,” underpinned by its affordable private-label portfolio, lean cost structure, and a growing footprint across underserved cities.
Shares of Vishal Mega Mart rose as much as 2.2 per cent on Wednesday to Rs 140 on the BSE.
Vishal Mega Mart (VMM) operates 696 stores across 458 cities in India, with roughly 72 per cent of its footprint located in Tier 2 and smaller towns. Motilal Oswal said the company is tapping into a largely unorganised Rs 70 trillion retail opportunity, which it expects will exceed Rs 100 trillion by 2028.
“VMM is one of India’s largest offline-first value retailers, catering to ~1 billion people across the middle- and low-income segments,” the brokerage said, adding that the company’s well-diversified exposure to apparel (44%), general merchandise and FMCG (28 per cent each), gives it significant wallet share potential.
Lean model, strong store economics
According to Motilal Oswal, Vishal Mega Mart operates on one of the lowest cost structures in the industry, with a cost of retailing of about Rs 1,800 per sq ft, at least 20 per cent lower than its nearest competitor. Its working capital discipline and asset-light approach have helped generate ~15 per cent store-level EBITDA margins and over 50 per cent return on capital employed.
The company added around 85 net stores in FY25, and Motilal Oswal estimates about 13 per cent compound annual growth rate in store additions, taking the count to 1,000 by FY28. Management has indicated a long-term target of adding 100 stores annually, including in states such as Tamil Nadu, Gujarat, and Maharashtra.
Private labels driving profitability
VMM’s private labels contributed 73 per cent of total revenue in FY25, supported by 26 in-house brands across fashion, general merchandise and FMCG. Nineteen of these brands recorded over Rs 1 billion in sales, with six crossing Rs 5 billion.
The brokerage highlighted that the company’s private-label FMCG products, sourced from vendors such as Indo Nissin and Bikanerwala, are priced 20–50 per cent lower than national brands, helping attract price-sensitive consumers. “VMM operates a 100 per cent private label portfolio across men’s, women’s and kids’ fashion,” Motilal Oswal said.
Valuation and risks
Motilal Oswal’s target price of Rs 165 is based on its long-term cash flow projections, valuing the stock at around 45 times its estimated EBITDA and 69 times its projected earnings for September 2027. Despite the stock having already gained 75 per cent since its IPO, the brokerage believes “the risk reward remains attractive,” with potential to go as high as Rs 210 in a bullish scenario and a downside to Rs 120 in a weaker one.
The brokerage expects the company to generate Rs 32 billion in operating cash flow and Rs 23 billion in free cash flow over FY25–28, supporting continued expansion.
Key risks flagged include dependence on third-party vendors for manufacturing its private labels, rising competition from online and offline retailers, and the potential for promoter stake sales amid a lack of clarity on long-term ownership.
