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A category creator celebrating diversity with ethnic wear

* Vedant Fashions (VFL), with a pan-India presence covering 250 cities and 640 stores, has established itself as a strong brand within the highly underpenetrated and unorganized ethnic wear segment (~20% branded). Limited competition, growing cultural pull and strong brand recall present a huge runway of growth for VFL.

* The company’s: a) strong design capabilities with data-driven decision making (leading to no discounted sales), b) tech-driven supply chain and auto replenishment model c) exclusive vendor ecosystem, and d) franchisebased EBO expansion have helped scale up its business and achieve superior margins.

* Scaling-up emerging brands (especially Mohey; ~10% of revenue), and catering to the sizeable women’s celebration wear market (~5x the size of men’s segment at INR735b as of FY20), can be the key growth levers with improving operating metrics and plans to add independent stores. Further, expanding a) Twamev through up-selling and b) Manthan to capture the value fashion segment could underpin revenue growth moving ahead.

* The company’s minimal capex requirements, attributed to the franchisefunded growth and its strong profitability, are likely to translate into a healthy cash conversion cycle and an ROIC of 58% (pre-Ind AS 116; FY23E).

* We expect the company to report a revenue/PAT CAGR of 21%/22% over FY23-25, driven by 15% footprint additions. We ascribe a forward P/E of 55x, at ~10% premium to our average retail coverage multiple, to arrive at our TP of INR1,400. We initiate coverage on the stock with a BUY rating.

* Key downside risks: a) prolonged recovery in discretionary spending, b) a delay in scaling up of emerging brands (Mohey, Twamev and Mathan), c) heightened competition from the entry of National retailers in ethnic wear segment and d) strong dependence on external job workers for procurement and production of end-products.

Tradition reinvented, fashion renewed quite admirably

VFL, through the brand Manyavar, has created a strong brand in the deeply underserved men’s ethnic wear market. Catering across price points, the brand offerings include a complete ready-made wedding and occasion wear, solving age- old hassles of long lead time and unimpressed wedding attire trousseau. With a revenue scale of INR13.4b (FY23E) across 640 stores, it has built a panIndia presence with limited competition. VFL’s strong brand recall, thanks to it curated marketing strategy with celebrity brand ambassadors and emotional theme based campaigns has created aspirational brand yet value for money with industry leading margins and return profile. We expect it to garner a revenue/PAT CAGR of 21%/22% over FY23-25, led by continued footprint additions, healthy SSSG, and improving contribution from new sub-brands.

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