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GO’s Q4 performance was in line with estimates. But the 17% SSG led to a 30% revenue growth in Q4 (ex-incremental credit note of Rs70mn), which should most likely drive relative outperformance for GO vs. fashion/apparel peers, in Q4. Three key positives in GO’s Q4 commentary are: 1) GO has seen a definite pick-up in demand in Q1TD, leading to a better-than-expected outlook of 10% SSG for FY24. 2) GO targets reducing WC by 20-30 days in FY24 itself, ahead of our expectations (we foresee a similar reduction only by FY26). 3) Promoters are targeting pledge closure by Mar-24 vs no definite timeline earlier, allaying investor concerns to some extent. We raise FY24-26E EBITDA by 1-3%, on a better SSG outlook, but remain conservative on the WC front. We maintain BUY, with revised TP of Rs1,300 (30x Jun-25 EBITDA vs. Mar-25 earlier). TP revision has been led by EBITDA revision and 3M rollover.

Strong SSG should drive a relative outperformance vs. fashion/apparel retailers

Q4 revenues grew 30% (ex-incremental credit note of Rs70mn), led by 17% SSG in the EBO channel, with network expansion contributing the balance. The SSG performance was a combination of 5% volume growth, 6% price hike (Dec-21) and the remaining 6% on account of a better mix (more value-added products vs. leggings/churidars). Store additions as well as outlook remained robust, with 127 additions in FY23 and a similar addition expected going ahead as well. The LFS channel witnessed 35% volume decline in Q4, owing to operational issues with GO’s largest partner; however, this has been corrected in Q1TD. WC (including deposits/other assets) at 178 days reduced by 44 days in FY23 and company targets further reduction by 20-30 days in FY24. GO received an incremental credit note of Rs40mn (Rs60-70mn in total), and there was a write-off of Rs47.6mn related to bad receivables from the Future Group. Excluding both one-offs, EBITDA margin declined by ~100bps to 31.5%, owing to higher employee expenses

Earnings-call KTAs: 1) GO plans to improve its EBO revenue mix to 80% over the next 2-2.5 years vs. 74% in FY23. 2) GO expects 10% SSG in FY24, led by equal contribution from volume and realization. Benefit of price hikes taken in Dec-21 has been completely absorbed in the base. 3) Overall volume growth was 1% in Q4, led by 23%/30% volume growth in the EBO/Online channels and 6%/35% decline in the MBO/LFS channels. 4) Total volumes sold in Q4/FY23 were 2.38mn/12.1mn (vs. 2.35mn/8.2mn in Q4/FY22). 5) GO added 5 new products to its portfolio and expects this pace to continue going ahead, as pipeline of new products remains strong. 6) GO incurred an Ad expense of 3% in FY23 and expects the same level of spends to continue in FY24 as well. 7) Inventory levels at end-FY24 remained similar to those at end Sep-23, thereby helping GO to generate an operating cash flow of Rs0.2bn for FY23 (vs. loss of Rs0.2bn in FY22). 8) Of the total Rs2.3bn inventory, Rs0.4bn comprises raw material inventory, Rs1bn finished goods at the warehouse, and Rs0.9bn finished goods inventory at the stores. 9) Basic products contributed 45-50% of overall revenues in FY23, while value-added products contributed the remaining 50-55% to overall sales. 10) Rent was 13.6% of sales (Rs0.9bn) in FY23 which GO expects to remain in the range of 13-13.5% of sales in FY24.

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