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Go Fashion (India) IPO: Should you subscribe? –

Go Fashion

Company Overview

Incorporated in 2010, Go Fashion (India) Ltd (GFIL) is one of the largest women’s bottom-wear brands in India. Under its brand Go Colours, the company has acquired an 8 percent market share in branded women’s bottom-wear market in FY20. GFIL is engaged in the development, design, sourcing, marketing and retailing of a range of women’s bottom-wear products which include churidars, leggings, dhotis, harem pants, Patiala salwars, palazzos, culottes, pants, trousers and jeggings that are sold across categories such as ethnic wear, western wear, fusion wear, athleisure and denim. The company’s products cater to women across all age groups and physiques. These factors, coupled with the lack of seasonality, ensure that the portfolio is resistant to redundancy from fashion trends.

GFIL Market Presence

GFIL serves its customers primarily through its network of 459 exclusive brand outlets which includes 12 kiosks operated on a company-owned and company-operated (COCO) model and 11 franchise stores. It had a presence across 23 states and Union territories as on September 30.

The company’s distribution channels include large-format stores including Reliance Retail, Central, Unlimited, Globus Stores and Spencer’s Retail. As on September 30, the company had 1,270 large-format stores. In addition, it sells its products through its own website and online marketplaces and through multi-brand outlets.

Issue details

The company is going in for an initial public offering (IPO) that is a combination of fresh equity issue (approximately 1.8 million shares at the upper limit) worth Rs 125 crore and an offer for sale (OFS) of 12.9 million shares (about Rs 888.61 crore at the upper cap) having a face value of Rs 10 each.

The overall size of the IPO through book building is Rs 1,013.61 crore. The price band for the offer is Rs 655-690 per share with a minimum lot size of 21 shares and in multiples thereon.

Up to 75 percent of the issue is reserved for qualified institutional buyers, while 15 percent and 10 percent of the net issue is reserved for non-institutional bidders and retail investors, respectively.

The issue opens on November 17 and will close on November 22.

Promoters currently hold 57.47 percent stake in the company and post-IPO this will come down to 52.79 percent. Public holding will increase from the current 42.53 percent to 47.21 percent.

Of the net proceeds from the fresh issue, Rs 33.8 crore will be used to fund the rollout of 120 new brand outlets and Rs 61.4 crore to fund the working capital requirements. Residual funds will be used for general corporate purposes.

What should investors do?

Though the company has its inherent strengths in terms of a well-diversified product portfolio, efficient and technology-driven supply chain and in-house design and development capabilities, the company faces risks that can be a cause of concern.

In a report, Choice Broking highlights that the company can be hit by any kind of slowdown in consumer spending, inability to adapt to the rapidly changing consumer preferences, competition from other players and a build-up of inefficiencies in expanding and managing its retail network.

“At higher price band of Rs 690, GFIL is demanding an EV/sales multiple of 13.8x, which is at a premium to the peer average of 10.9x. Thus the issue seems to be fully priced,” the brokerage said. EV/sales is enterprise value to sales, used to measure a company’s value.

It has assigned a “subscribe for long term” rating for the issue, stating that “the target market potential and the market share of GFIL in the niche category coupled with the largest network of exclusive brand outlets provides a huge potential to expand the business”.

On its part, brokerage Marwadi Financial Services said, “Any deterioration in public perception of the brand could affect customer footfall and consequently adversely impact the business, financial condition, cash flows and results of operations.”

Considering trailing twelve months (TTM) sales of Rs 271 crore on a post-issue basis, the company is going to list at a market cap/sales of 13.73 with a market capitalisation of Rs 3,727 crore, while its peers Page industries and Trent are trading at market cap/sales of 13.21 and 11.89, respectively, the brokerage added.

It assigns a “subscribe” rating to this IPO as it is available at reasonable valuation compared to its peers.  

According to brokerage Angel One, a slowdown in the economy and increase in competition could severely impact the overall revenue of the company. “In terms of valuations, the post-issue FY20 EV/EBITDA works out to 30.2x (at the upper price band), which is almost in similar range compared to its peers TCNS Clothing Co. (FY20 EV/EBITDA  of 29.3x),” it added. EBITDA is earnings before interest, tax, depreciation and amortisation.

It has assigned a “subscribe” rating to the issue as GFIL has better track record of revenue growth, higher operating margin and higher return on equity compared to its peers.