Company Update : Vedant Fashions by Motilal Oswal Financial Services Ltd
Revenue growth picks up on a low base; higher opex hurts profitability
* Customer sales grew ~23% YoY to INR4.1b, driven by ~17.6% SSSG (on a very weak base of -27.2% SSS decline in 1QFY25 and ~4% store area additions.
* Consolidated 1Q revenue rose ~17% YoY to INR2.8b (5% above our estimate, but in line with consensus), aided by a favorable base (-23% YoY in 1QFY25).
* However, we note that 1QFY26 revenue is still lower than revenue in 1QFY23 and 1QFY24 (INR3.1-3.25b).
* Vedant Fashions added six net new stores, primarily led by the SIS count, which increased by 14. VFL had net closures of eight EBOs (six in India and two internationally). As a result, net area declined by 6.4k sqft QoQ to 1.78m sqft (though it grew 4% YoY).
* Gross profit (GP) increased 15% YoY to INR2b as gross margin contracted 140bp YoY to 72.4% (125bp miss).
* GP (including job work charges) grew 16% YoY with margins contracting ~85bp to 66.9%.
* Other expenses rose ~36% YoY (14% higher than our estimate), likely on higher A&P spends, while employee costs increased 7% YoY (2% above).
* As a result, EBITDA grew modest ~7% YoY to INR1.2b (2% below our estimate), due to operating deleverage as other expenses outpaced revenue.
* EBITDA margin dipped ~410bp YoY to 42.9% (~315bp miss).
* Depreciation/finance costs grew 7%/2% YoY, while other income jumped ~20% YoY (16% higher).
* Reported PAT grew ~12% YoY to INR0.7b (3% above us), driven mainly by higher other income.
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