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In this article, we will discuss the Fundamental Analysis of Go Fashion. We will discuss its business model, company financials also we will study its valuations, and at the end, we will check the Pros and Cons of this stock.
Disclaimer: This article is only for educational purposes. I do not recommend buying or sell so please consult your advisor and do your own research before investing.
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Introduction
- Now let’s know about the company.
- Go Fashion was incorporated in 2010 by Mr. Prakash Kumar Saraogi & Mr. Gautam Saraogi.
- It is one of the largest women’s legwear brands in India under the name Go Colors.
- The company is engaged in the development, design, sourcing, marketing, and retailing of a range of women’s bottom-wear products.
- The category creator for the women’s bottom-wear segment and was the first company to launch a brand dedicated to this category.
- The company held an 8% market share in the branded women’s bottom-wear market in FY20.
- The company’s products include churidars, leggings, dhotis, harem pants, Patiala, palazzos, culottes, pants, trousers, and jeggings.
- They are sold across multiple categories such as ethnic wear, western wear, fusion wear, athleisure, denim, plus sizes, and girls’ wear.
- It currently offers bottom wear in over 50 styles in over 120 color selections as of Sep 2021.
- The price of its products ranges from ₹ 225 to ₹ 1,599 with the average selling price in FY21 at Rs 584.
- The company currently has 459 exclusive branded outlets in 118 cities across 23 states and UTs in India.
- Its outlets are located in places with high footfall such as high streets, shopping malls, and airports.
- The company also sells its products through large format stores (LFSs) including Reliance Retail, Central, Unlimited, Globus, and Spencer’s Retail.
- Additionally, the company also sells its products through online fashion marketplaces and multi-branded outlets.
Revenue Breakup
- The FY21 sales breakup across distribution channels for the company is:
- EBOs: 78.24% LFSs: 13.44%
- Online: 6.45% MBOs & Others: 1.87%
- The inventory and logistics for the company are managed from its 99,100 square foot warehouse in Tirupur, Tamil Nadu.
- The geographical distribution of its outlets as of June 2021 was:
- The company has grown its EBO network with a CAGR of 16% since FY19.
- Around 58% of its EBOs are located in Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune as of Sep 2021.
- The Go Colors brand accounted for 68.92% of revenues for the company in FY21.
- As of Sept 2021, the company has a network of over 120 suppliers and job-workers across India.
- The company has also attracted investment in the past from reputed investors like Sequoia Capital in 2014 and ICICI Ventures in 2018.
- So this was a detailed revenue about the company.
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Fundamental Analysis of Go Fashion
Fundamental Analysis of Go Fashion is as follows:
Business Model of Go Fashion
- Now, let’s know about the industry.
- The Indian Apparel market is expected to grow at a CAGR of 8.95% from 2020 to Rs 6.87 Lac Cr in 2025.
- Within this industry, the share of organized retail is expected to grow from the current 32% to 45% in 2025.
- The share of branded apparel is also expected to rise from 45% currently to 56% in 2025.
- The women’s apparel market is expected to grow at a CAGR of 9.2% to reach a market size of Rs 2.54 Lac Cr in 2025
- With organized retail is expected to rise at a much faster CAGR of 19.7% and accounts for 42% of the market in 2025 vs 27% currently.
- The major growth drivers for the women’s wear category in India are:
- The factors responsible are-
1. Rising workforce participation from women.
2. Shift to aspirational shopping from need-based shopping.
3. Design innovation.
4. Better shopping experience due to the rise of organized retail.
5. The emergence of online shopping.
6. A young population and rising income.
7. The emergence of women-only brands.
- So this was an industry overview.
Financials of Go Fashion
Now let’s talk about the company’s financials.
- Now, let’s compare FY20 with FY21.
- Total Assets is showing increment from 519.19 to 548.37 crores.
- But Total Revenue and Profit after Tax has shown a decline which may be due to Covid.
- In Total Revenue, the figure decreased from 396 to 282.
- In Profit after Tax, the figure became negative. It decreased from 52.63 in FY20 to -3.54 in FY21.
- Net Profit Margin is -1.25% Operating Profit Margin is 6.18%.
- The company’s Earning per share -0.68 Industry PE is 130.
- Debt to Equity is 1.01 Current Ratio is 2.28.
- 2-year Sales CAGR is -1.51%.
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Pros and Cons
Now we will talk about the pros and cons of investing in Go Fashion.
Pros
- First, let’s talk about the positive points.
- The biggest advantage that Go Fashion has is its first-mover advantage.
- It is the first brand to build a dedicated brand for women’s bottom wear, which is beneficial for the company.
- Its focus on women’s bottom wear enables it to avoid the volatility due to seasonal trends and keep demand steady throughout the year.
- It also promotes the concept of mixing and matching to enable the company so there’s no saturation in its products.
- It can make more than 83% of its sales without any discounts vs everyone else in the industry offers discounts to drive sales.
- The organized women’s bottom wear accounts for only 33% of the industry size.
- It also has good potential for revenue growth through the online channel as it accounts for less than 7% of sales currently.
- The company has an EBITDA margin of 33.4% and PAT margin of 13.4% in FY20.
- So these were a few advantages of Go fashion.
Cons
- Now let’s talk about a few negatives of the company.
- The company’s original model is focused on EBOs and thus it works on a capital-intensive business model
- It involves acquiring and developing outlets in expensive high footfall areas.
- The company has no manufacturing facilities of its own and it outsources 100% of its manufacturing.
- Although it has a high number of suppliers, the supply chain and quality control risks associated with outsourcing remain.
- The company follows a cluster-based approach to store opening.
- Thus there may be store concentration in certain areas which may lead to sales cannibalization and slow down market capture in new states.
- All the logistics and supply of the company’s business takes place through a single warehouse in Tirupur, Tamil Nadu.
- Any material risk from natural or man-made disasters in the area will be very detrimental to the company’s operations.
Conclusion
Overall if we conclude Fundamental Analysis of Go Fashion has an excellent business and its management, strong competitive advantage, and good financial and bright growth prospect which makes it a fundamentally good company.
But the company has suffered due to the pandemic and posted negative earnings for the last 15 months. Based on such dismal performance the issue is having negative P/E. However, it holds a pure long-term story considering an expansion plan afoot to increase outlets from 450+ to 2000+ in the coming five to six years. The company hopes to be on track once full normalcy returns and regain its growth pattern on pre-pandemic lines. Its dependence on third-party contracts remains a major concern. Hence, risk seekers/cash surplus investors may park funds for long-term rewards.
What is your take on the Go Fashion have you invested in it do let me know in the comment box. I hope you find this analysis useful, and if yes please share it with your friends and family.
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