Domestic brokerage Motilal Oswal initiated coverage on retail chain operator Vishal Mega Mart Ltd, believing the value retailer is a play on rising aspirations in tier 2 cities and towns across India.

Vishal Mega Mart is one of India’s largest offline-first value retailers, catering to a population

of one billion people across the middle- and low-income segments. It serves a substantial market valued at ~Rs 70 lakh crore, which is likely to reach Rs 100 lakh crore by CY28.

Motilal Oswal initiated coverage with a 'buy' call, and price target of Rs 165, indicating an upside potential of 20 percent.

The brokerage noted it has a strong footprint of 696 stores across 458 cities spanning 30 states and union territories, with ~72 percent of its stores located in tier 2 cities and beyond. Vishal Mega Mart is a unique retailer with well-diversified exposure across key consumption baskets: apparel (44 percent) and general merchandise & FMCG (both ~28 percent), that provides an opportunity to increase its share of customers’ wallets.

Motilal Oswal noted that tier 2 towns account for ~74 percent of India’s retail spends (~Rs 56 lakh crore), which remains largely dominated by unorganized retail (~90 percent 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," said the brokerage.

During FY22-24, the retail operator 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 percent EBITDA margin at the store level, over 50 percent RoCE, and a payback period of less than two years."

Further, according to Motilal Oswal, given the long runway for growth, strong store economics, and entry into newer territories, the pace of store additions will likely remain elevated over FY26-28, as the firm expands its presence in states such as Tamil Nadu, Gujarat, and Maharashtra.

Notably, Vishal Mega Mart has also established a diverse and expanding portfolio of 26 own

brands across key consumption baskets, with revenue contribution from these brands steadily rising to 73 percent by FY25.

"Given VMM’s debt-free balance sheet, robust cost controls, and tight working capital management, we expect ~24 percent PAT CAGR," added the brokerage.

At 10.20 a.m., shares of the firm were quoting Rs 137.88, higher by 0.6 percent after trimming some intraday gains.