Vishal Mega Mart’s value proposition faces a test as it reshapes strategy

Bengaluru-based Vishal Mega Mart Ltd's latest quarterly report and strategic moves have raised doubts about the value-retailer's dedication to its value proposition while aiming for growth. While keeping its entry-level prices the same, the company has shifted price hikes to higher-priced items. In addition, it is testing a new premium apparel line and smaller retail spaces, all while expanding its larger-format store network.

The company's efforts aim to capture new customer segments and markets while maintaining affordable pricing. Amid concerns over profitability and a muted response to recent results, Vishal Mega Mart reported a 14% increase in revenue to ₹3,398.5 crore in Q3, but only a 3.7% rise in net profit to ₹157.9 crore. The operating Ebitda margin fell to 7.7% from 8.5% a year earlier, and same-store sales growth (SSSG) was at 5.4%.

CEO Gunender Kapur explained that the season shift due to Durga Puja, Dussehra, and Navratri falling in October, rather than September, resulted in a 9% SSGG decline. Kapur believes the company will need a 12-13% SSGG in the December quarter to achieve about 9% growth for the first nine months of the fiscal year. The stock has fallen 33.73% year-to-date, trailing both Nifty 50 and Avenue Supermarts Ltd. Analyst Sandeep Abhange of LKP Securities acknowledged the company's reasonable 14-15% growth in revenue given its presence in tier-2 and tier-3 markets, but warned that "how margins play out post December quarter will be a key thing to watch out."