Buy Go Fashion Ltd for the Target Rs.775 By Emkay Global Financial Services Ltd
Weak Q2; retain BUY on recovery signs and valuation comfort
We retain BUY on Go Fashion, while cutting our TP by ~14% to Rs775, on account of a ~10% cut in the TP multiple and ~4% cut in earnings. Despite the significant TP cut, our BUY is led by early signs of demand revival during festive, GO’s confidence on SSG revival with new product launches in H2, heavy stock price correction (~35% YTD; ~16x FY28 EBITDA), and commitment on ~50% pledge reduction in the next few months. The Q2 performance was weak, with 7% topline growth (EBO SSG: -3.6%) and muted EBITDA/PAT growth (preIndAS). Given weak macros, GO has reduced its store outlook to 80-90 net additions in FY26 (vs earlier outlook of 120-130 additions), though GO maintained that expansion headroom remains robust and expansion shall accelerate on demand revival. While higher primary sales to LFS partners has led to 15 days increase in WC (YoY), the balance sheet remains healthy with net cash of Rs2.6bn (vs ~Rs2.3bn at FY25-end). The initial traction in international foray and daily concept stores (2 stores in Chennai) has been encouraging, with incremental monthly throughput of Rs1,000/sqft/month.
Near-term focus on recovering SSG; cuts store expansion outlook
Q2 revenue grew ~7.5% (in-line), led by 23% growth in LFS channels, while the EBO channel (~70% mix) saw ~2% growth. EBO SSG fell 3.6%, though the management expects improvement via continuous focus on product development, supported by investment in the product team and multiple launches lined up in H2. Stronger growth in the LFS channel was driven by addition of ~80 stores in Q2 (primary sales). EBO growth of 2% was supported by 5% increase in ASP, while volume was impacted. EBITDA margin at 29.7%, down by 80bps YoY, was impacted by lower gross margin (~62.6%, down by 50bps) and higher employee expense. Net EBO addition stood at 9 in Q2, taking the total store-count to 812 (1 international store); store additions were moderate in H1 (36 net additions) and the mgmt has revised its guidance to 80-90 net additions in FY26 (vs 120- 130 earlier); downward revision in store-addition guidance reflects a cautious approach amid muted revenue growth trends, as the mgmt focuses on safeguarding margins and improving store-level productivity and SSG before accelerating expansion. Number of WC days rose by 15 days to 135 (YoY), though the mgmt targets ~50% OCF-to-EBITDA for FY26 (now at ~40%). However, balance sheet strength remains healthy, with net cash of Rs2.6bn at H1FY26-end (vs ~Rs2.3bn at FY25-end).
Mixed regional trends; focus on new product launches, top-wear pilot underway
The company continues to perform well in West India, particularly Maharashtra (positive SSG), while South India has been relatively muted. To support growth, GO aims to launch new collections, enter new markets, and invest in marketing initiatives to enhance visibility and customer engagement. It is sharpening its product and merchandising strategy with several new bottom-wear launches planned for 2H, including in Palazzos and Pants, which will be featured prominently at store fronts. It has also expanded its existing bottom-wear stores to include a dedicated top-wear section, with two pilot stores in Chennai already achieving over Rs1,000 sales per sqft per month.
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