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Muted start to FY26; structural growth intact, valuations attractive

* Go Fashion (India) Ltd (GOCOLORS) reported a muted start to FY26, with revenue growing modestly at 1% YoY, impacted by a 2% SSSG decline driven by weak footfalls, supply chain disruptions due to Bangladesh import restrictions, and a 13% YoY revenue drop in the LFS channel amid partner-related challenges.

* Employee costs increased ~300bp YoY, reflecting a higher headcount from new store additions and annual salary increments.

* Overall, subdued topline growth and negative operating leverage led to a 17% YoY decline in pre-Ind AS EBITDA to INR 350m, with margins contracting ~355bp to 15.7%.

* We cut our revenue/EBITDA estimates for FY25-28 by 3-4% to reflect nearterm softness, but build in a 14%/14%/16% CAGR in revenue/EBITDA/PAT over FY25-28.

* At 40x one-year forward EPS, the stock trades below its historical average. We reiterate our BUY rating with a TP of INR 988, based on 40x Sep’27E EPS.

Revenue growth picks up on a low base; higher opex hurts profitability

* Revenue grew by a modest 1% YoY to INR2.3b (9% miss).

* EBO revenue grew 3% YoY, largely led by new store additions (added 27 QoQ), as SSSG remained weak at (-)2%.

* LFS revenue declined 13% YoY, impacted by ongoing consolidation at a major LFS partner (Reliance), despite ~220 new LFS additions during the period.

* Online revenue grew 8% YoY. MBO revenue doubled YoY.

* ASP grew 4% YoY, owing to a better product mix.

* Gross margins expanded ~120bp YoY to 63% (in-line), driven by favorable RM costs. Gross profit rose 3% YoY to INR 1.4b.

* Employee costs increased 19% YoY (5% above), while other expenses were up by a modest ~3% YoY (11% below).

* EBITDA declined 5% YoY to INR687m (16% miss), driven by a negative operating leverage.

* EBITDA margin contracted ~195bp YoY to 30.8% (~240bp miss).

* Pre-IND AS EBITDA declined 17% YoY to INR350m.

* Pre-IND AS EBITDA margin contracted ~355bp YoY to 15.7%.

* Depreciation/Finance costs grew 9%/8% YoY, while others declined ~10% YoY.

* As a result, reported PAT declined ~22% YoY to INR223m

Highlights from the management commentary

* Demand trends: 1QFY26 saw a 2% SSSG decline, with volumes down ~5% due to weak footfalls, LFS disruptions, and delayed Bangladesh-sourced SKUs. Sales were soft in April-May (Eid timing, regional issues), but recovered in June via EOSS. Management targets mid-single-digit SSSG, supported by sharper pricing (INR 1,000-1,200) and 6-7 new bottom-wear launches.

* Channel challenges: LFS revenue declined 13% YoY despite 12-13% outlet growth, impacted by partner-level issues and promotional timing. Restructuring is now largely complete with near-full partner coverage. MBO remains a selective, brand-building channel.

* Expansion strategy: 27 EBOs were added in 1Q (total 803), with FY26 expansion focused on 120+ net adds, 60-70% in Tier 2/3 cities.

* Pilots for women’s top-wear and menswear were launched in 10-15 stores by utilizing surplus space to test new categories. The company entered global markets with its first Dubai store, which received a positive initial response.

* Promoter pledge was reduced by ~200bp in July to ~9% of equity.

Valuation and view

*GOCOLORS is well-positioned to leverage its leadership in the women’s bottomwear segment and D2C model, with significant expansion potential beyond its current presence in ~180 cities.

* While near-term SSSG headwinds persist, management’s confident target of adding 120+ stores—60–70% of which will be in newer geographies—is a key positive for future growth.

* Gross margins are expected to remain resilient, aided by favorable input costs, helping partially offset the impact of negative operating leverage from subdued SSSG.

* We cut our revenue/EBITDA estimates for FY25-28E by 3-4% to reflect nearterm softness, but build in a 14%/14%/15% CAGR in revenue/EBITDA/PAT over FY25-28.

* At 40x one-year forward EPS, the stock trades below its historical average. We reiterate our BUY rating with a TP of INR 988, based on 40x Sep’27E EPS.

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