IMO
What vedanta fashion is and what’s the possible future prospect ?
- I mostly feel the brand value is a big plus point. They’re already synonymous with wedding and festive wear in India and have great branding/ advertising and there’s market left to capture is huge.
- The ability to penetrate throughout the world for Indian wear, at mid-premium and premium segment is not an impossible task.
- If they can venture out to other wearable spaces associated with wedding and festive, there’s enough market left.
How does vedanta fashion valuation look like ?
- At 25 times book value and close to 60 times pre-tax annual earnings, the valuation is very steep.
- The only way to justify this valuation is there’s extremely long runway and huge tailwind. If company could double profit in 3 years (PEBT will be 30) and it still deserves a valuation of much higher than 35-40 times earnings with lots of run way left, there’s good chance of stock appreciation in this time.
- There’s no alternative for company but to register great sales and profit growth without compromising margins and have continued future growth plans to justify current valuation.
What’s could be the future proof that vedant fashion is a wrong investment?
- Losing brand value/ reputation in any sense.
- Becoming irrelevant in the fashion space (Look at Raymonds today vs 1-1.5 decades before)
- Not being the market leader in its own space.
- Not having plan for sustained company growth and international expansion in after 3 years.
- Long time underperformance in market.
With these considerations, I would be increasing my allocation in vedant fashion to 3% and monitor in which direction the stock pans out. This valuation is nowhere near healthy levels for investing good amount of money. It’s avoid / put minimal allocation in portfolio and monitor in the mean time levels. The advantage of having skin in the game for stock you are positive about is you’ll continue to think about it and when time comes to act decisively and load up, will be prepared well.
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