Go Fashion IPO opens today: Gain or Pain?


Chennai-based clothing player Go Fashion has launched its IPO today for subscription. The public offer of Chennai-based apparel player is priced at INR655 – 690 per share and the company aims to mobilize up to INR1,013.61 crore. The IPO is commanding strong premium in the informal grey market. Meanwhile, several brokerage houses have come up with Go Fashion IPO recommendations. Here is a brief snapshot of analyst views:

Angel One finds the prospects of the company bright considering its robust business model. “In terms of valuations, the post-issue FY20 EV/EBITDA works out -30.2x to (at the upper end of the issue price band), which is almost in similar range compared to its peers TCNS Clothing Co. (FY20 EV/EBITDA -29.3x). Further, Go Fashion India has better track record of revenue growth, higher operating margin & high Return on equity compared to TCNS Clothing Co. Considering all the positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue,” noted Amarjeet Maurya in an IPO note.

Samco has a positive view on the upcoming IPO but only from a listing perspective as it finds valuations very high. “As of FY21 price to sales of 14.2x, Go Fashions looks steeply priced as compared to its peers like TCNS (7.9x) and ABFRL (5.4x) which can be attributed to its superior financials. However, considering the company’s focus on only one category i.e., women’s bottom wear, the premium valuations may not be justified. Considering the traction and euphoria surrounding the primary markets and that the company does have better financial track record and margin profile as compared to its peers, we recommend investors to ‘SUBSCRIBE’ to this IPO FOR LISTING GAINS only,” said the brokerage house’s report.  

Ventura Securities has initiated coverage with a subscribe rating and a price target of INR974 per share. “Our price objective of INR 974 (49x FY24 PE) per share represents an upside of 41.1% over the IPO price of INR 690 over the next 24 months. We forecast GFL to scale revenues at 45.2% CAGR to INR 766.9 cr over the period FY21-24, driven by a rapid store roll out to 1,792 outlets (+370 EBO store additions to a total of 819 stores, +525 LFS store additions to 1,792),” said the broker, adding to positive Go Fashion IPO recommendations.

While ICICIdirect did not rate the offer, it noted that Go Fashion has strong operating metrics with one of the industry’s highest revenue/sq ft of around INR17,000/sq ft. as on FY20 and healthy operating margins of around 21% pre-IndAS 116. It also highlighted the company’s capital efficient business model with RoE of nearly 18% as on FY2020.

Nirmal Bang finds the upcoming IPO attractively priced owing to debt-free balance sheet, expected reduction in working capital cycle, and expansion through internal accruals. “Going ahead, higher growth accompanied with reduction in working capital cycle will lead to higher operating cash flows to company. This will lead to funding of opening of new stores through internal accrual. ROE stands at 18.4% for FY20. Looking at the good growth potential , At the given upper price band of issue of Rs 690, Go fashions is offered at PE of 70.8 x FY20 EPS which we feel is attractive. We recommend subscribing to the issue,” said the broker.

GEPL Capital feels the issue should be subscribed for listing gains only and investors should wait before placing long term bets. “The branded womenswear segment in India is dominated by certain large national and regional players like TCNS (with brands such as W, Aurelia, Elleven, and Wishful), BIBA, Global Desi, AND, H&M, Zara, M&S, Fabindia, Soch and Twin Birds. They also face competition from private in-house label brands launched by large format stores. We would await a sustainable recovery in the sales per store amid rising competition before making a long term investment. However, we recommend a subscribe rating to the issue for the purpose of potential listing gains,” noted its research note.

Choice Broking also added to positive Go Fashion IPO recommendations and advised investors to invest in the IPO for long-term. “At higher price band of Rs. 690, GFIL is demanding an EV/Sales multiple of 13.8x, which is at premium to peer average of 10.9x. Thus the issue seems to be fully priced. However, considering the target market potential & the market share of GFIL in the niche category coupled with the largest network of EBOs, we feel that it has the potential to expand the business and also almost fully recover the lost profitability due to the pandemic. Thus, we assign a “Subscribe for Long Term” rating for the issue,” said its research note.

Go Fashion IPO recommendations: Voice of Dissent

While acknowledging the company’s strengths of well-diversified product portfolio, an efficient technology-driven supply chain, and in-house design and development capabilities, CapitalVia Global’s Research Analyst Likhita Chepa has placed an Avoid rating on the IPO. “…it is exposed to any slowdown in consumer spending, inability to adapt to rapidly changing consumer preferences, competition from other players, and the buildup of inefficiencies in expanding and managing its retail network,” said Chepa.

Apart from Go Fashion IPO recommendations, another effective indicator is grey market. It is noteworthy that the offer trades at 58% premium in the grey market which points to a listing with strong gains.


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