Vishal Mega Mart Divides Analysts; Jefferies, Bernstein Initiate With Contrasting Stances

While both Jefferies and Bernstein initiated coverage on Vishal Mega Mart Ltd. on Wednesday, they don’t see eye to eye on the value retailer’s growth story.

Jefferies called it “a compelling value retail play”. Bernstein, on the other hand, set the most bearish target price among the nine analysts covering the stock — at Rs 90. The two disagree on whether the company’s margin profile and expansion strategy can sustain its current valuation.

The former has a ‘buy’ rating with a price target of Rs 125, while the latter initiated an ‘underperform’ rating with a price target of Rs 90. JP Morgan and Morgan Stanley had initiated coverage with an 'overweight' call back in January, one month after Vishal Mega Mart’s premium debut on the exchanges, with target prices of Rs 125 and Rs 161, respectively.

Jefferies is optimistic about Vishal Mega Mart’s growth potential in Tier-2 and smaller cities, its strong store-level economics, and a highly efficient cost structure. It expects a 27% compound annual growth rate in earnings between fiscal 2024 and 2027, supported by a 90–95 store addition run rate each year.

The brokerage firm noted that nearly 70% of the company’s 668 stores are in smaller towns, where lower rental costs and better operational efficiency enable faster payback periods of under 20 months.

The retailer’s focus on private labels — which contribute 72% of sales — and sourcing through 750-plus third-party contract manufacturers allows it to price products 30–40% lower than branded rivals, Jefferies said.

Apparel makes up the largest chunk of sales at 45%, followed by general merchandise and fast-moving consumer goods. The company also maintains a strong balance sheet with net cash and best-in-class return ratios, according to Jefferies.

Bernstein, however, sees risks building up. The firm argues that Vishal Mega Mart is already at peak margins, and that rising competition — from the likes of DMart, Zudio, VMart, and online player Meesho — could erode its same-store sales growth going forward. It estimates a slower 10% earnings CAGR over fiscal 2025 to 2028 and sees limited upside from current levels given the stock's valuation.

According to Bernstein, 47% of VMM’s stores currently face no organised value retail competitor nearby, but that is likely to change quickly. Players like DMart are expanding into eastern and northern India, while Zudio and VMart are scaling up aggressively. In FMCG, Bernstein believes DMart has a price and scale advantage, with a private label portfolio that is 10% cheaper than Vishal Megamart’s offerings.

The brokerage also flagged that VMM’s apparel portfolio is more basic and may struggle to keep up with fast fashion preferences among Tier-2 and Tier-3 consumers, especially with shifting trends like casualisation and Instagram-driven fashion.

Gross margins across categories are already at the higher end — around 44% in apparel, 25% in general merchandise, and 7% in FMCG — and are unlikely to expand meaningfully, it said.