Buy Vishal Mega Mart; target of Rs 125: Motilal Oswal

Key Investment Pillars

• Resilient revenue growth: Vishal Mega Mart (VMM) delivered a 14% YoY revenue growth in 2QFY27, driven by 5.4% same-store sales growth (SSSG) and 10.5% YoY store area additions.
• Double-digit SSSG: VMM targets double-digit SSSG and 100+ store additions in FY27, with annual store additions expected to progressively exceed the previous year's count.
• Improving margins: VMM's EBITDA margin is targeted to expand ~30bp annually over the medium term, as SSSG is likely to outpace 6-7% store-level cost inflation.
• Cost discipline: VMM's cost re-engineering efforts are expected to keep gross margins broadly stable YoY in 2H, even with crude at ~USD100/bbl.

Thesis Validation Checklist

• Revenue growth: Monitor VMM's ability to sustain double-digit revenue growth, driven by SSSG and store additions.
• Margin expansion: Track VMM's progress in expanding its EBITDA margin, driven by cost discipline and operating leverage.
• Store additions: Monitor the pace of store additions and the company's ability to maintain its target of 100+ store additions in FY27.
• Gross margin stability: Watch for VMM's ability to maintain its gross margin, despite potential headwinds from raw material inflation and higher employee costs.