Brokerage firm JM Financial has initiated coverage on the stock of Go Fashion (India) with a DCF-based target price of ₹1,410, a 19 percent upside from Tuesday's closing price of ₹1,184.50 on BSE.
The stock hit its 52-week high of ₹1,450 on BSE on November 1, 2022. Year-to-date, the stock is up 11 percent against a 7 percent gain in benchmark Sensex.
JM Financial highlighted Go Fashion is the leader (value market share of about 8 percent) in India’s highly unorganised women’s bottom-wear segment (pegged at ₹13,500 crore) and the first to launch an exclusive branded portfolio in the space.
The brokerage firm believes due to increasing preference for modular clothing and a high pace of formalisation, the organised women’s bottom-wear category (pegged at ₹3,100 crore) is estimated to grow at a CAGR of 24.3 percent (faster than the organised women’s wear CAGR of 19 percent) over FY20-25E.
However, the brokerage firm underscored that on-ground execution is a critical element for success in fashion retail.
JM Financial observed while identifying the category rightly was half the job done, Go Fashion decided to exclusively focus on it and aced the execution aspect by (a) providing a well-diversified range of quality products at affordable prices, and (b) building a pan-India EBO-focused distribution model with impressive store economics (high sales per sq ft of nearly ₹18,000-20,000 and store level EBITDA margin of nearly 30-31 percent).
"An in-place execution template, lack of formidable competition and the company’s focus on newer growth drivers (online channel and new product extensions) provide assurance on the future runway for growth," said JM Financial.
The brokerage firm believes a steady increase in the share of the high-margin EBO channel (from 73 percent in FY22 to 76.6 percent by FY25E) along with scale benefit will help drive improvement in EBITDA margin, resulting in average RoE (return on equity) of over 20 percent over FY23-25E.
"With improvement in sales throughput and reduction in the share of the LFS channel, working capital days are expected to moderate (down from 190 days in Mar’22 to 137 days in the first half of FY23), resulting in blended company-level RoIC (return on invested capital) of more than 30 percent over FY23-25E," said JM Financial.
According to a MintGenie poll, 4 analysts on average have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
