Brokerages recommend subscribing to Go Fashion IPO. Here's why

The IPO opened for subscription on November 17 in the price band of Rs 665 to Rs 690

The Initial Public Offer (IPO) of Go Fashion (India), which owns women’s wear brand Go Colors, opened for subscription on Wednesday, November 17. The company plans to raise Rs 1,014 crore through the share sale via this IPO, which is priced in the range of Rs 665 to Rs 690.

Meanwhile, on Tuesday the company raised Rs 455 crore from anchor investors through share allotment. It alloted 6.6 million shares at Rs 690 apiece. Government of Singapore, Abu Dhabi Investment Trust, Nomura, SBI MF and Axis MF are some institutional investors given allotment in the anchor category. READ MORE

Here’s what the brokerages have to say about the IPO:

ICICI Securities
View: Unrated

According to the brokerage firm, the women’s apparel market is estimated to be around 36 per cent of the total apparel market, while the women’s bottom-wear market contributed 8.3 per cent of women’s apparel market (Rs 13,547 crore). It expects the women’s apparel market to grow from Rs 1,63,291 crore in FY20 to Rs 2,53,733 crore by FY25.

Investment Rationale:

• The company continues to expand its retail network with focus on exclusive brand outlets (EBOs). Of the total proceeds from the share sale, around Rs 33 crore will be used to add 120 new stores during FY23-24E.
• Has the expertise to develop and design in-house products
• It intends to further improve operating efficiency and enhance customer experience by leveraging technology.

Key Risks:

• Dependence on a single brand, category
• High store network concentration in southern, western India
• Inability to protect its trademarks, including ‘Go Colors’
• Dependence on outsourcing in absence of own manufacturing facilities
• Dependence on single warehouse for pan-India distribution

Nirmal Bang
Recommendation: Subscribe

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 per cent impacted due to Covid. In FY20, the company sales had grown by 37.4 per cent, although in FY21 revenue dipped due to Covid. Q1FY22, company recorded a growth of 200.8 per cent YoY and revenue came at Rs 31 crore, indicating recovery.

With the expected 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.

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. Looking at the good growth potential, at the given upper price band of issue of Rs 690, Go fashions is offered at PE of 70.8x FY20 EPS which we feel is attractive. We recommend subscribing to the issue.

Geojit
Recommendation: Subscribe

Investment Rationale

The women’s bottom-wear market in India accounted for 8.3 per cent of the women’s apparel market and stood at Rs 13,547 crore in FY20 and is expected to grow at a CAGR of 12.3 per cent to reach Rs 24,315 crore by FY25.

For FY21, the revenue of the company stood at Rs 250.7 crore against Rs 392 crore a year ago. Net loss for FY21 stood at Rs 3.5 crore versus a profit of Rs 52.6 crore in FY20, primarily on account of the impact of COVID-19 on the operations and on account of the adoption of Ind AS 116.

The company was able to maintain attractive gross margins of 59 per cent for FY19-21 period. Average EBITDA margin is around 26 per cent due to tight operational control.

At the upper price band of the IPO of Rs 690, Go Fashion is available at Mcap/ sales of 14.9x (FY21) which appears fully priced.

However, considering GFIL’s investment in digital channels, omnichannel engagement, focus on E-retail, distributive growth strategy to tap customers from tier 1 to tier 3 cities and expansions plans for existing and newer geographies, we assign a “Subscribe” rating for the issue on a long-term basis.