Go Fashion (India) For Target Rs.1,463 - Anand Rathi Share and Stock Brokers
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Continued network expansion; upgrading to a Buy
Go Fashions’ Q3 revenue grew ~25% y/y to Rs1.8bn, in line with our estimates. Demand eased after the festival season, but rose in Dec. The EBITDA margin contracted ~320bps y/y to 33.5%, expected as Covid’19- related cost savings have reduced. The company reported 10% SSSG y/y arising from 10% value growth and 2% SSSG volume decline. Its clusterbased store-expansion model has led to revenue cannibalisation at individual store level thus impacting SSSG and volume growth. On samecluster sales growth, volume growth was 11% y/y. Management aims at 4-5% SSSG volume growth. It intends to bring down inventory days to 90 (from 120 now). Network expansion continued; it added 35 in Q3. We reduced our FY24e/25e sales ~6.5%/8% because of slightly lower volume growth. The stock price has fallen 20%+ in the last 3 months. We upgrade our rating to Buy with a TP of Rs1,463 on 23x FY25e EV/EBITDA.
In-line revenue growth. Q3 revenue grew ~25% y/y to Rs1.8bn from growth across the portfolio. The gross margin (incl. sub-contracting expenses) contracted ~170bps y/y to 59% led by marketing offers from LFS partners. The EBITDA margin contracted ~320bps y/y to 33.5% led by higher employee and other expenses than last year. Ad-spends were lower q/q, and would be 3-4% of sales in FY23. PAT grew ~3% y/y to Rs243m.
Working-capital days narrowed y/y, but are yet higher than pre-Covid at 151 (vs. 178 in 9M FY22). Management aims to bring down inventory days to 90 (120 in 9M FY23) by reducing inventory at warehouses. OCF was Rs600m for 9M FY23. Network expansion continued; it added 35 (net) EBOs in Q3 (101 in 9M FY23), taking the total to 604. It will continue to add 120-130 stores every year. Management guided to 60-60.5%/32-33% gross/EBITDA margins.
Valuation. We upgrade our rating to a Buy with a TP of Rs1,463 on 23x FY25e EV/EBITDA. We believe core products, higher gross margins and return ratios are positives and make the company a good long-term investment idea. Risks: Dependence on a single brand and category, lacking barriers to enter the women’s bottom-wear market.
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