Vishal Mega Mart’s stock fell around 2% on Tuesday, a day after surging 10% following the board’s decision to reappoint Gunender Kapur as managing director and chief executive officer from 1 September 2026 to 31 August 2031.
The reappointment removes a key uncertainty for investors. In its review of the company’s June quarter (Q1FY27) results, Motilal Oswal Financial Services had flagged “key-man risk (continuity of its long-standing CEO beyond June 2027)” as a crucial overhang on the stock. The concern came amid significant management churn.
In June alone, the company appointed a new vice-president and head of internal audit and a new chief of operations, while its senior FMCG and supply-chain leadership also saw churn in recent months.
Promoter stake sales have also been weighing on the stock. In February, promoter Samayat Services LLP, backed by Kedaara Capital, offloaded almost 14% of Vishal Mega Mart, cutting promoter holding from 54.1% to 40.1%. When the stock debuted in December 2024, promoters held 76%. A large chunk of shares also became eligible for trading after lock-ins expired in July, adding to the supply overhang.
That said, promoter selling has been accompanied by institutional buying to an extent. Mutual fund shareholding rose from 4.4% in December 2024 to 30.6% as of June, while foreign institutional shareholding increased from 4.6% to 20.4%. The board recently approved a cap on foreign ownership at 49.99%, in line with India’s foreign direct investment rules for retail.
Strong operating momentum
Fundamentals have remained robust. Q1FY27 revenue grew 19% year-on-year to ₹3,730 crore, helped by 10% same-store sales growth (SSSG) and an 11% increase in retail area. The company added 24 net new stores during the quarter, taking its total to 819 across 559 cities, with a retail area of 13.8 million sq. ft.
Despite minimum-wage hikes in several states, reported Ebitda (earnings before interest, tax, depreciation, and amortization) margin remained stable at 14.6%. Pre-Ind AS Ebitda margin expanded 25 basis points to 10.2%. Reported Ebitda is higher because lease rent is reflected in depreciation and finance costs, while pre-Ind AS Ebitda treats lease rent as an operating expense.
While the company held back on hikes in the entry-level price points to protect demand and its value positioning in the affordable range, calibrated hikes were implemented at higher price points. Encouragingly, SSSG at higher price points still held up better at 14%, compared to the blended SSSG of 10%.
Management expects demand to improve as inflationary pressures recede, even as its private-label portfolio continues to support market-share gains. The company’s private-label portfolio accounted for 75% of sales, while around 175 million loyalty customers contributed about 95% of gross revenue.
Near-term outlook is not without risks. Inflation could continue to weigh on consumption, while persistent geopolitical conflicts could hurt consumer sentiment. The company is also scaling its quick-commerce operations, but competition from quick-commerce players and conventional formats such as DMart and Zudio could pressure margins.
Small-format stores have shown promise, with similar revenue productivity and return on capital employed. But the plan to expand this format to 3,000 stores will need to be monitored for execution.
Following Monday’s rally, the valuation has become more demanding, at 42x FY28 estimated earnings, based on Bloomberg consensus. Any slowdown in SSSG and/or the pace of store additions could hurt sentiment for the stock.