Vishal Mega Mart Shares Gets 'Buy' Initiation As Motilal Oswal Sees Attractive Risk-Reward

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Motilal Oswal Report

We expect Vishal Mega Mart Ltd. to post a revenue/Ebitda CAGR of 19%/20%, driven by:

1. ~13% CAGR in store additions,

2. consistent double-digit same-store sales growth, and

3. modest operating leverage benefits.

Given Vishal Mega Mart’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 Vishal Mega Mart to generate a cumulative operating cash flow/free cash flow of ~Rs 32 billion/ Rs 23 billion, 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 Vishal Mega Mart with a Buy rating and a target price of Rs 165, 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 Vishal Mega Mart’s average trading multiples since the listing.

Based on our reverse DCF analysis (10.5% risk-free rate, 6.5% terminal growth rate), our target price of Rs 165/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: Rs 210/share; bear: Rs 120/share)

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