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Building optimism

We met with the CEO and CFO of Vedant Fashions, Mr. Ravi Modi and Mr. Rahul Murarka. Management was confident about a demand recovery post2QFY25 and anticipated higher contributions from the new categories.

Weak performance in the last five quarters; expect recovery from 2QFY25

The business has remained weak in FY24 due to a weak macro environment and a clustering of weddings. However, after five quarters of lackluster demand, we expect 1QFY25 to remain soft due to a fewer weddings. However, demand should pick up from 2QFY25 supported by wedding dates, higher contribution from newer categories, and a low base. The 15% store additions are likely to continue with its current penetration in 255 cities. The company’s fundamentals were strong, with a 1% YoY revenue growth in FY24 that led to only 3% YoY decline in PAT. Additionally, the return ratios remained robust, with RoE/RoCE at 28%/53% (pre Ind-AS 116).

Key highlights from the meeting

The company stated that after five quarters of lackluster demand, it will start picking up in 2QFY25 due to wedding dates as per the Hindu and South Indian calendars. Management also stated that although FY17–18 and the Covid era (FY21–22) witnessed a weak wedding season and a muted environment, Manyavar recovered strongly in the following year. Management is confident about its competitive positioning vs. both unorganized and organized players. In addition, it plans to launch a new brand with an ASP range of INR1,000–3,000 that will be available online and through MBOs. Management also anticipates higher growth from the new categories, Mohey and Twamev, which are seeing good traction with increasing contributions from the flagship and new standalone stores. The franchisee owners are satisfied with Vedant Fashions and the company has not seen any reduction in count during FY24.

Valuation and view

* Manyavar has successfully achieved scale within the men’s celebration and occasion wear markets, which is difficult to replicate. ? While the company has a healthy runway for growth with footprint additions in Manyavar, coupled with expansions in Mohey (women's celebration wear) and Twamev (premium celebration wear), weak consumption remains a concern.

* The stock has corrected 37% from its 52-week high (in Dec’23) owing to a weaker revenue trajectory. Assuming a recovery in 2HFY25 and building in a 22% PAT CAGR over FY24-FY26, we believe the stock is fairly priced given the slowdown in consumption. Demand recovery and scaling up of emerging brands would remain the key catalysts for the stock.

* The stock is currently trading at 38x on FY26E. We are factoring in 18%/22% revenue/PAT CAGR over FY24-26E. Reiterate Neutral with a TP of INR1,010, valuing the stock at 40x FY26E P/E.

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