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BACKGROUND

Go Fashion (India) is a women’s bottom-wear brand in India, with a market share of approximately 8% in FY20. Under the brand name “Go Colors” the company is the first to launch a brand exclusively dedicated to women’s bottom-wear category (ethnic, western wear, fusion and denims) and have leveraged this advantage to create a direct-toconsumer brand with a diversified and differentiated product portfolio of premium quality products at competitive prices.

Objects and Details of the Issue

The public issue consists of fresh issue of Rs 125 cr for the following

* Funding roll out of 120 new EBOs;(Rs 33.7 cr)

* Funding working capital requirements (Rs 61.3 Cr )

Offer for sale of ~Rs 888 cr by Promoter and selling shareholder

Investment Rationale:

* Growth in the industry will lead to growth for the company

* Expansion through EBO and Online Channel 

* Strong financials

Valuation and Recommendation

Over FY19-21, the company sales has de grown at a CAGR of 6.3% impacted due to Covid. FY20 the company sales has grown by 37.4%, although in FY21 revenue dipped due to Covid. Q1FY22, company recorded a growth of 200.8% YoY and revenue came at Rs 31 cr, indicating recovery. With covid situation normalizing, we expect revenue to bounce back. Going ahead, with Growth in the bottom wear industry and with shift from unorganized to organized market, with higher number of EBOs at right location will lead to higher revenue to the company. Q1FY22, although gross margins stood at 64.2% levels, however, company reported loss of Rs 5.9 cr which was majorly due to impacted sales.

Taking, FY20 into consideration since it was less impacted year with Covid , EBitda margins for FY20 stood at 32.3%.With Improvement in sales and with change in mix to higher EBOs revenue with limited discount offers to selling price, will lead to higher profitability, going ahead.FY21, Being covid impacted year , Working capital for the company stands at 171 days vs 141 days in FY20. Going ahead management indicates of bringing down the working capital days to 120 , majorly with reduction in inventory days to 90 from 106 in FY20, receivable days to 30 from around 56 days in FY20. Cash flow from operations of the company stands at Rs 57 cr, FCFF at Rs 29 cr in FY20 . Total debt for FY20 stands minimal at Rs 2.8 cr, indicating company is debt free. Going ahead, higher growth accompanied with reduction in working capital cycle will lead to higher operating cash flows to company. This will lead to funding of opening of new stores through internal accrual. ROE stands at 18.4% for FY20. Looking at the good growth potential , At the given upper price band of issue of Rs 690, Go fashions is offered at PE of 70.8 x FY20 EPS which we feel is attractive. We recommend subscribing to the issue.

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