Go Fashion IPO Fundamental Analysis (Subscribe for Long Term)

Go Fashion IPO  Fundamental Analysis

Key Business Highlights

  • Incorporated in the year 2010 in Chennai, Go Fashion has an extensive network of 459 EBOs (exclusive brand outlets) spread across 23 states and union territories in India, as of September 30, 2021. The company is known for its brand ‘Go Colors’.
  • The Issuer follows the COCO model (company-owned and company-operated) which results in better operational control and greater store profitability. EBOs are located in high streets, malls, residential market areas in major metros, large cities, and other tiers II and tier III cities and at airports.
  • Distribution channels also include large format stores (LFS) including Reliance Retail Limited, Central, Unlimited, Globus Stores Private Limited, and Spencer's Retail among others. LFSs have grown from 925 LFSs in FY19 to 1,419 LFSs in FY20 and further increased to 1,267 LFSs, in FY21. In addition, the company also sells through its own website and through multi-brand outlets (MBOs).
  • The products are sold directly to consumers primarily through EBOs and as of September 30, 2021, the Issuer operated 459 EBOs across 118 cities in 23 states and union territories across India.

Financial Review of Go Colors

Go Fashion posted total revenues of Rs 40.29 crore for Q1FY22. The total revenues for FY21 reduced significantly by 29% to Rs 282.25 crore from Rs 396.84 crore in FY20. The reduction resulted in a weakened financial performance of the Issuer in FY21 which arose due to the temporary closure of a number of stores across India due to lockdown related restrictions leading to decreased customer footfalls at the stores and a significant decrease in same-store sales up to the third quarter of Fiscal 2021. The Issuer posted losses after tax of Rs 3.54 crore in FY 21 and Rs 18.9 crore in Q1FY22 against PAT of Rs 52.63 crore in FY20 and Rs 30.94 crore in FY19.

Revenue from operations from online channels grew to Rs 11.94 crore in FY21 from Rs 3.82 crore in FY20. It was Rs 2 crore for Q1FY22.

The profitability margins showed an increasing trend in FY20 but the margins have declined in FY21 due to the pandemic effect. Return on net worth has been (1.34%), 18.60% and 10.81% for FY21, FY20 and FY19 respectively.

It should be noted that the fixed costs as a percentage of revenue from operations was 35.22%, 37.01%, 62.35%, and 131.88% in Fiscal 2019, 2020 and 2021 and in Q1FY22 respectively. Rental expenses and leave and license fees account for a significant portion of cash outflows.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title Q1FY22 FY2021 FY2020 FY2019
Total Revenue 40.29 282.25 396.84 290.98
PAT -18.99 -3.54 52.63 30.94
EBITDA -5.90 46.35 126.5 79.99
Total Assets 530.65 548.37 519.19 404.13
EBITDA Margin -14.64% 16.42% 31.88% 27.49%
Net Margin -47.13% -1.25% 13.26% 10.63%

Valuation and Peer Comparison

The P/E of the Issue is not ascertainable as the EPS is negative as at the end of Q1FY22 and FY21. At NAV of 50.56 as at the end of Q1FY22, P/BV is 13.65 calculated at the upper price band of Rs 690 per share. Page Industries, Trent, Bata India, Aditya Birla Fashion, and TCNS clothing are shown as peers of Go Colors. The peer group P/E is 130.17 as of 31st March 2021.

Table 2 - Go Colors valuation and peers comparison
Particulars Page Industries Trent Limited Bata India Limited Aditya Birla Fashion TCNS Clothing Go Colors
Face value per share 10 1 5 10 2 10
Total Income for FY21 (INR Cr) 2852.43 2794.66 1802.60 5322.30 684.50 282.30
EPS 305.35 -4.11 -6.95 -8.23 -8.85 -0.68
NAV per share 793.94 66.32 136.74 29.24 99.47 54.21
Return on net worth 38.50% -7.70% -5.10% -27.50% -9.20% -1.25%
P/E 130.17 NA NA NA NA NA

Sector Outlook

The share of organized retailing within women’s apparel has increased from 19% in FY15 to 27% in FY20 and is expected to reach 42% by FY25. Women’s bottom-wear is the fastest-growing category in the women’s apparel segment market and contributes to Rs 135,470 million in FY20 and is expected to grow at a CAGR of 12.35% to reach Rs 243,150 million by FY25.

Issue Snapshot

Go Fashion’s IPO opens on 17th Nov 2021 (fresh issue Rs 125 crore). The Issue comes with a price band of Rs 655-690 per share. The proceeds would be used to roll out 120 new EBOs (Rs 33.73 crore) and working capital requirements (Rs 61.40 crore). The Issue would close on 22nd Nov and list on Nov 30, 2021.

Conclusion and Investment Strategy

The Issuer has a market share of approximately 8% in the branded women’s bottom-wear (WBW) market in FY20 and is expected to grow in the next 2-3 years. This rapid growth is attributable to a growing female population, increasing number of working women, evolving fashion trends, and rising spending power of consumers.

The Issuer has a well-diversified product portfolio offering 50 bottom wear styles available in a range of over 120 colors starting with a price range of Rs 225-1600 and has a pan –India distribution network that enhances its brand visibility.

Challenges that the Issuer faces currently, impact its financial profile due to the pandemic and competition from the unorganized market. The Issuer’s financial performance needs to be tracked for the next couple of quarters.

The Issue comes with a mixed bag of risks and returns. The Issuer has good growth prospects in the long term when seen from its same-store sales growth in FY20 which was 11.37%. WBW is a universal category that coordinates with all kinds of outfits and thus drives repeat purchases. The Issuer plans to grow sales through online channels, and focus on establishing additional EBOs across tier 2 and tier 3 cities. Hence risk-takers may subscribe with a long-term perspective to the IPO.

Reviewer recommends Subscribing to the issue.

Review By CA Priyanka Choudhary on 11th Nov 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

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