Financial summary of Go Fashions India

Incorporated in the year 2021, Go Fashions India is the largest organized designer, developer and retailer specializing in women’s bottom-wear. It boasts of 8% of the organized women’s bottom-wear market offering over 50 styles spread across 120 different colour shades. Go Fashions operates through an Omnichannel front end comprising of 459 exclusive brand outlets (EBOs) and several marquee large format stores (LFS). Its LFS partnership includes names like Reliance Retail, Unlimited, Central, Globus, etc. It is supported by 73 suppliers, 42 full-time job workers and a 99,100 SFT warehouse.

Break up of the Rs.1,014 crore Go Fashions IPO

Here is what the Go Fashions IPO (combining fresh issue and OFS) comprises of.

  • The OFS component will entail the promoters, Sequoia and others selling 128.78 lakh shares and if you consider the peak price of Rs.690, OFS value is Rs.889 crore.
  • After the issue is completed, the promoter stake will come down from 57.47% to 52.78%. Public shareholding will increase to 47.21% post the public issue.
  • The fresh issue will be for 18.12 lakh equity shares amounting to Rs.125 crore at the upper price band of Rs.690 per share.

The loss in financial year 2020-21 can be termed an outlier as it was due to closure of most retail outlets leading to weak demand and reduced footfalls. If you consider FY20 as the benchmark, then numbers have been quite impressive. Go Fashions had EBITDA margins of 30% and ROCE of 14% to 18%. Its focus on EBOs would mean higher retention while online selling would offer them scale with growth and limited outlays.

How should investors approach the Go Fashions IPO?

Here is what investors must consider before taking a view on the Go Fashions IPO.

  • The company will benefit going ahead as it enhances the share of sales from EBOs. More so, since the fresh funds will be used to open 120 new EBOs.
  • Has a product / solution offering for all types of customers in all ranges. Its middle-range pricing will be especially helpful considering that 40% of the EBOs are stationed beyond the Tier-1 cities of India.
  • Retail selling in the fashion business is about managing the back end and the front end. That is where its back-end linkages with sourcing agents and job work units as well as front end consisting of EBOs and LFS will come in handy.
  • In any fast moving customer-facing business, there are two factors that are critical. For example, Go Fashions EBOs enjoy store growth (SSG) of 183% (normalized would be lower) and sales per SFT at over Rs.1,440.
  • Logistics and handling of inventory is a key differentiator in the retail business. Go Fashions manages its entire inventory and logistics through its 99,100 SFT warehouse in Tirupur, which gives total control of the complete process flow.
  • The stock, based on its indicative post-listing market cap trades at 45-50 times normalized earnings for FY21, so it should be cheaper in forward terms. The stock offers a good platform to participate in retail growth, albeit with a higher risk factor.

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