Delayed recovery on sustained demand pressure
We recently met with the management of Go Fashion, which highlighted that the recent impact on overall revenue growth was due to demand slowdown and not due to concerns relating to product portfolio/ASP, and that the company continued to outperform its peers. The recent slowdown has impacted new customer addition, hitting volume/EBO. EBO consolidation, which was the pain point in FY25, will be largely over by Mar’25. The company expects to add ~120 stores annually over the next 2-3 years. Strategic initiatives in the MBO business and improved performance in the LFS business will also aid the company in its long-term growth trajectory. We cut our target price to INR 980 from INR 1,160, as delay in demand recovery is resulting in a cut in our FY26-27 Revenue/PAT estimates by 2-5%/5- 7%, coupled with a cut in our target multiple to 38x from 42x earlier on account of (i) muted Revenue/PAT CAGR of 11%/12% over FY24-27 vs. 22%/20% CAGR over FY19-24, (ii) dilution in RoE/RoCE to 16%/13% in FY27, and (iii) increase in promoter pledge from 17.4% to 19.8% due to fall in share prices. We maintain BUY as the recent stock price correction of ~30% in 3 months has rendered the risk reward ratio favourable.
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