With a deep presence in tier-II and beyond, Vishal has built a retail empire catering to value-conscious consumers. Unlike its larger rivals, it thrives on a combination of high margins and its own brand, which fuels profitability.
As India’s retail sector gears up for massive growth, Vishal is expanding aggressively, making it a compelling opportunity in the evolving market. This article explores Vishal’s strategy and financial strength and explains why investors are betting on its long-term growth potential in India’s booming retail market.
Strong foothold in tier-II cities and beyond
Finding stylish yet affordable products isn’t always easy in India’s mid-tier towns. That’s where Vishal Mega Mart steps in. With nearly 70% of its stores in tier-II cities and beyond, it caters to middle- and lower-middle-income families who want quality without overspending.
More prominent retail players (like DMart) often focus on bigger cities, but Vishal saw an opportunity where others didn’t. By providing budget-friendly fashion and essentials in these areas, Vishal has established itself as a trusted name among value-conscious consumers seeking affordable yet stylish products.
Huge opportunity to grow despite higher store account
It operates 645 stores in 414 cities spread across 30 states and Union territories. These stores are strategically located, with one in each of 350 cities and more than one in 64 cities. Uttar Pradesh, Karnataka, and Assam are the top three states contributing 37% to its overall revenue.
Notably, it has been on an expansion spree, opening 110 new stores in the last two fiscal years. Despite this, it sees potential for expanding its store network into new cities for growth.
According to its red herring prospectus (RHP), the company has a presence in 33 of India’s 50 tier-I cities. In addition, there are 1,250 tier-II cities and beyond, of which it has a presence in just 381. Notably, these locations have low organized retail store density, which the company sees as a huge opportunity to tap into.
Comparatively, Vishal’s widespread presence gives it a numerical edge over DMart in terms of store count. However, a closer look reveals a key difference in their operating models.
While Vishal may have more stores, DMart operates on a much larger scale, with an average store size of 41,910 square feet—2.35 times larger than Vishal’s 17,812 square feet per store.
Vishal’s goal is to expand into high-growth states—Tamil Nadu, Gujarat, and Maharashtra—where the company currently lacks a presence. These states offer greater purchasing power, which the company intends to leverage for future growth. However, they also have increased competition.
Broad portfolio with strong positioning and product range
Vishal offers a diverse range of merchandise in three categories: General merchandise (GM), fast-moving consumer goods (FMCG), and apparel. Apparel stands out prominently, contributing 45% to its sales, followed by FMCG at 27% and general merchandise at 28%. It offers products in the apparel and GM category at a starting price of ₹99 and above.
Vishal’s own brands give it financial muscle
The company has built a strong portfolio, blending its own brands with third-party labels, but its own brands that truly steal the spotlight. Vishal’s 19 in-house brands generate over ₹100 crore (each) in sales, with six of them crossing the ₹500 crore mark.
It generates 71.8% of its sales from its own brands, contributing ₹6,400 crore to total revenue in 2023-24.
The company’s revenue from its own brands is notably increasing at a CAGR of 28% as it continuously adds new brands to its existing portfolio, catering to the aspirations of consumers within its price segment. This approach has been central to its business strategy, yielding strong results.
Own brands give it industry-leading margin
While FMCG attracts foot traffic, Vishal’s real profit engine is apparel and general merchandise, contributing 73% of its total revenue. The majority of sales in this segment come from its own brands, which command higher margins due to better cost control.
According to its RHP, Vishal’s gross margins in apparel and GM are 8-12% and 4-6% higher than in FMCG. Notably, Vishal generates 100% of revenue in the apparel segment from its own brands.
This strategic combination—high-margin categories paired with in-house brands—does more than just drive revenue. It strengthens overall profitability, reinforcing Vishal’s financial position and competitive edge in the value retail space.
This sets Vishal apart, even though it only generates one-fifth of DMart’s sales. While DMart, the poster boy of India’s retail, earns just 23.5% of its revenue from apparel and GM, Vishal’s dedicated emphasis on its own brand enables it to secure a significantly higher margin of 14%, as opposed to DMart’s 8%.
Furthermore, Vishal consistently expands its own brand portfolio, believing it can provide affordable products for budget-minded consumers. The influx of new brands into its marketplace will assist the company in either sustaining or enhancing its profit margins.
Vishal’s strong same-store sales growth
Own brands contribute to an impressive same-store sales growth rate (SSSG) of 13.6%, compared to DMart’s 9.9%, even amid challenging industry demand. It is among India’s two leading offline-first retailers in terms of SSSG.
By establishing a strong presence at opening price points across various segments, it has attracted a broader shopper demographic and cultivated a loyal consumer base of 13.4 crore, fueling SSSG growth.
Additionally, the company plans to continue launching new products while increasing the share of its own brands to engage current customers better and attract newcomers.
It has also rolled out hyperlocal delivery from most of its stores, offering delivery and pick-up options, which it anticipates will further boost SSSG. This initiative will help retain customers who might otherwise turn to quick commerce alternatives.
Is Vishal making money or just selling more?
Vishal’s robust margins and the positive trends in SSSG are evident in its impressive financial performance over the years. It is India’s fastest-growing leading offline-first retailer, based on profit growth in the last four years.
Revenue increased at a CAGR of 26%, rising to ₹8,912 crore in FY24, up from ₹5,590 crore in FY22. Likewise, net profit surged with a CAGR of 32%, reaching ₹462 crore in FY24.
On a per-square-foot basis, it generated sales of ₹8,100, much lower than DMart’s ₹32,000, mostly because DMart revenue of ₹50,700 crore is 6x Vishal’s.
Additionally, it boasts an earnings before interest, tax, depreciation, and amortization (Ebitda) margin of 14% for FY24, with an Ebitda of ₹1,249 crore, which has grown at a CAGR of 16% in the last three years.
Moreover, it has a robust adjusted return on capital employed (RoCE) of 71%, illustrating Vishal’s effectiveness in producing revenue from the capital invested in expansion.
This efficiency is reflected in its impressive store payback period of 19 months—the shortest among leading offline-first retailers in India. This rapid turnaround helps it accelerate profitability on new stores quickly, accelerating growth.
Moreover, it generates healthy operating cash flow every year. In FY24, it generated a cash flow of ₹830 crore, providing ample support for its aggressive store expansion. As of September 2024, it had cash and cash equivalents of ₹700 crore, which makes it well-positioned to fund future growth while maintaining financial flexibility.
Vishal maintained its robust growth in the third quarter of this fiscal year. Revenue increased by 19.5% from last year, reaching ₹3,136 crore, while profit rose by 28% to ₹262 crore. Additionally, Ebitda surged by 18.3% to ₹505 crore, with a margin of 16.1%.
Has the stock run up too much, or is there more to gain?
Evaluating its valuation against its benchmark is challenging due to its short trading history.
However, when we compare it to peers like Avenue Supermart (DMart), Trent, and V-Mart, its current valuation is somewhat premium compared to DMart, aligns with V-Mart Retail, and is discounted relative to Trent.
Currently, it has a price-to-equity (PE) ratio of 123, reflecting a 28% premium over DMart’s PE of 95.7x, and a 20% discount compared to Trent’s PE of 152. Additionally, it is trading at a 23% premium to V-Mart Retail.
Its valuation has undoubtedly surged since going public and presents a less favourable risk-reward ratio. However, it is essential to note that DMart’s valuation has recently dipped due to a business slowdown, while Vishal has sustained its growth trajectory. Additionally, the company is planning aggressive expansion while maintaining growth rates and margins, suggesting its valuation may remain stable.
India’s retail market is projected to grow at a 9% CAGR over the next five years, rising from ₹68-72 trillion to ₹104-112 trillion by 2028. This growth will be fueled by increasing per-capita income and urbanization.
India’s per capita retail spending currently stands at ₹53,200, significantly lower than the US at ₹10 lakh and China at ₹2 lakh, indicating substantial growth potential.
Notably, cities beyond tier-I are projected to drive this growth, anticipated to increase at a 32% CAGR, fueled by urbanization, improved purchasing power, and a shift from unorganized to organized retail sectors.
This trend will advantage players like Vishal, which has built a solid presence and deeper reach in smaller cities. It caters to a customer base often overlooked by larger firms. It provides a competitive edge and presents an enticing opportunity for investors to observe and tap into India’s consumption growth story.
Note: We have relied on data from www.screener.in and Tijorifinance. Only in cases where the data was unavailable have we used an alternative but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Madhvendra has been a passionate follower of the equity market for over seven years. He is a seasoned financial content writer. He loves reading and sharing his honest opinion about publicly listed Indian companies and macroeconomics.
Disclosure: The writer does hold the stocks discussed in this article.
