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Superlative performance on all fronts

• Vishal Mega Mart (VMM) delivered a strong performance in 1QFY26, with 21% YoY revenue growth, led by 21 net store additions (+15% YoY) and resilient ~11.4% SSSG, despite a shift in Eid to 4QFY25.
• Gross/EBITDA/Pre-INDAS EBITDA margins expanded 15/55/90bp YoY, driven by operating leverage and robust cost controls.
• Management indicated that VMM delivered double-digit SSSG across tiers and states in 1QFY26, driven by higher footfalls and slight up-trading by customers to higher price points. Further, its focus will be to maintain gross margins and invest the surplus to drive growth, while EBITDA margin expansion will be driven by operating leverage.
• We continue to believe that VMM’s unique business model, characterized by: 1) a wide presence in Tier 2+ cities (717 stores in 472 cities), 2) a welldiversified exposure to key consumption baskets; 3) a strong and affordable own brands portfolio (~76% revenue share), and 4) one of the lowest cost structures, provides it with strong moats against rising competition.
• We raise our FY26-28E EBITDA by ~1% each, driven by slightly higher operating leverage, while the PAT increase is more pronounced due to lower depreciation. We model a CAGR of 20%/21%/27% in revenue/EBITDA/PAT over FY25-28E, driven by ~13% CAGR in store additions and double-digit SSSG.
• We reiterate our BUY rating with a revised TP of INR170, premised on DCF implied ~45x Sep’27E pre-IND AS 116 EV/EBITDA (implying ~31x Sep’27E reported EBITDA and ~67x Sep’27E P/E).

Strong 1QFY26; revenue/EBITDA up ~21%/26% YoY

• 1QFY26 consolidated revenue stood at INR31.4b, growing 21% YoY (vs. consensus estimate of 20% YoY growth), driven by an adjusted SSSG of 11.4% (slightly lower than 13.7% in 4Q due to a shift in the festive dates).
• VMM added 21 net new stores in 1Q (23 gross additions), taking the total store count to 717 across 472 cities (14 cities added in 1Q), with a total retail area of ~12.4m sq. ft. (up ~11% YoY).
• Sales of own brands grew 24% YoY, while third-party brands grew by a modest ~13% YoY.
• Gross profit at INR8.9b grew ~22% YoY as margin expanded ~15bp YoY to 28.4%, driven by a higher share of private labels (75.8%, up 170bp YoY).
• Employee/other expenses rose 14%/19% YoY, but overall expenses were ~40bp lower YoY as % of sales, driving operating leverage in 1QFY26.
• Reported EBITDA grew ~26% YoY to INR4.6b (4% above BBG consensus) as reported EBITDA margin expanded ~55bp YoY to 14.6%.
• Pre-INDAS 116 EBITDA (post-ESOP charges) grew ~33% YoY to INR3.1b, with EBITDA margin of 9.9%, up ~90bp YoY.
• Adjusted PAT (pre-ESOP charges) came in at INR2.2b (up 38% YoY), with margin expanding 90bp YoY to 6.9%.
• Reported PAT of INR2.1b surged ~37% YoY, driven by higher EBITDA and other income (+2.2x YoY).

General merchandise and South India outperformed in 1QFY26

• Among categories, general merchandise outperformed with 23% YoY growth, followed by 20% each for apparel and FMCG.
• VMM expanded its presence in South India (Karnataka, Kerala, etc.) by adding 12 stores and opening a new store in Gujarat and Maharashtra. Early responses to these stores have been encouraging, according to management.
• Geographically, South India was the fastest-growing region for VMM with 23% YoY growth, though the region’s per-store productivity remains ~15% below the company-level average.

Highlights from the management commentary

• Demand trends: Management indicated that the company posted double-digit SSSG across tiers and states in 1QFY26, driven primarily by higher footfalls as well as slight up-trading to higher price points by customers. There was some impact from the shift of festivals such as Ugadi and Eid to Mar’25 (vs. Apr’24 in the base quarter).
• Demand outlook: The company remains optimistic about an improvement in consumer demand, led by higher disposable income after income tax rate cuts. Moreover, there is a slight uptick in rural demand.
• Margins: Management reiterated its endeavor to keep gross margin broadly stable, with any surplus likely to be reinvested in the business for driving growth. However, EBITDA margin is likely to expand slightly (~10-30bp), primarily driven by operating leverage.
• Expansions in Gujarat and Maharashtra: VMM opened one new store each in Maharashtra and Gujarat during 1Q, and the early response from customers has been encouraging. The company has begun exploring additional properties in both the states.

Valuation and view 

• 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. Refer to our recent Initiating Coverage note for our detailed thesis on VMM.
• We raise our FY26-28E EBITDA by ~1% each, driven by slightly higher operating leverage, while the PAT increase is more pronounced due to lower depreciation. We model a CAGR of 20%/21%/27% in revenue/EBITDA/PAT over FY25-28E, driven by ~13% CAGR in store additions and double digit SSSG.
• We reiterate our BUY rating with a revised TP of INR170, premised on DCF implied ~45x Sep’27E pre-IND AS 116 EV/EBITDA (implying ~31x Sep’27E reported EBITDA and ~67x Sep’27E P/E).

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