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Go Fashion has corrected by c.30% from its Nov peak levels, possibly triggered by weak demand environment, impact of which was to some extent seen in its Q3 performance (decline in same store volumes), although relatively less severe when compared to other fashion retailers like V-mart, Pantaloons, Page, TCNS. From medium to long term perspective, key investor concerns in this name have been largely around weak entry barriers & sustaining relevance with evolving consumer needs. Given the very limited fashion element in this segment, replicating product by competition is not a challenge. However, in our view, within women’s bottom-wear retailing, three critical aspects are sourcing & managing wide range of SKUs, innovation and store economics. Getting these elements right is a challenge and involves long gestation period. Go Fashion, through its exclusive focus on this category, has aced these aspects, which is also visible from its large portfolio scale (vs competition), improving share of value added products and superior store economics. While near term demand environment is challenging, long term fundamentals of the business model remain intact. Recent correction makes valuations palatable (19x FY25E pre-IND AS EBITDA) and provides a good entry point. We re-affirm our positive stance on the stock.

*Is competitive landscape changing in women’s bottom-wear segment: Within branded space, there is no formidable no. 2 player (new entrant TCNS has 34 stores and regional players in South are small with store n/w of 25-30 stores) with exclusive focus & scale of Go Fashion in bottom-wear. In this category, availability of quality fabric and replicating product is not a challenge, however, sourcing & stocking large number of SKUs is not easy. Go Fashion has strong first mover advantage and given its large size, company is able to source key SKUs at scale as well as procure adequate quantities of other SKUs from its suppliers, which helps in providing a wide offering to consumer and for competitors who have smaller scale; replicating that is challenging. Further, on pricing front also, Go Fashion is at par with its branded peers. Given the essential nature of the category and relatively limited competition, the impact on sales as well as discounting has been relatively lower versus other value fashion retail segments in Q3 and our checks suggest demand trends have been tracking relatively better in month of Jan/Feb too

* Innovation capabilities visible through portfolio evolution: Another key challenge for branded players is to remain relevant as per the changing consumer needs. In our view, Go Fashion has performed well in this aspect, visible from evolution of its portfolio over last decade in terms of range as well as improving salience of value added adjacent products (c.50% of sales now vs c.20%, 4-5 years back). Also, design process is core to the company, as the design team is headed by the Promoter/MD Mr. Prakash Saraogi himself. Further, rather than pushing new product across stores, the launch mechanism is more pull based & tech driven, wherein the product is launched in select stores/quantity and after that ERP system manages the supply chain based on the consumer demand. The success of the same was visible when leggings started to gain traction over churidars; ERP system picked that up & streamlined the stocking for the same.

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