Go Fashion post-IPO strategy: Grey market suggests strong listing

Go Fashion closed its IPO for subscription on 22 November 2021 and is scheduled to get listed on 30 November 2021. Allotment of the IPO, which was heavily subscribed, is already out on 25 November. While the company has decent fundaments, Go Fashion post-IPO strategy hinges almost entirely on price movements in the grey market. Over the last couple of weeks, grey market has demonstrated tremendous volatility owing to wild gyrations in broader markets.

To be sure, the IPO was subscribed over 135 times with highest demand coming from the HNI (NII) segment which got covered over 262 times. Let’s take a look at subscription figures which indicate heathy demand in other categories as well.

Go Fashion IPO Subscription

Category	Shares Offered	Day 1	Day 2	Day 3
QIB	44,06,996	0.25	3.24	100.73
NII	22,03,497	0.44	2.30	262.08
Retail	14,68,998	12.14	24.64	49.40
Total	80,79,491	2.46	6.87	135.40

Subscription figures in number of times at 5:01 PM

Strong demand from HNI segment is an effective signal of smart money chasing a stock which can go on to explode after listing. Recent examples of this are Latent View Analytics and Sigachi Industries which were subscribed 850 and 172 times respectively. Both IPOs rewarded investors very well and it is important to highlight that both were small with total offering size of INR600 crore and INR125.43 crore, respectively.

Similarly, Paras Defence IPO went on to double from listing day closing price of INR492.45 per share (already up 181.4% from allotment price) before correcting. Once again, the offering size was just INR170.78 crore and it was covered 927 times.

These precedents are hugely positive for the company. It is also noteworthy that Go Fashion’s GMP has not succumbed in the current mayhem while some other IPOs have been clearly hammered. At the time of writing this article, Go Fashion GMP indicates a listing with over 50% gains over allotment price.

Go Fashion post-IPO strategy: What should investors do?

As such, there are reasons to be optimist about Go Fashion post-IPO strategy. Nevertheless, it is never a bad idea to book partial profits, let’s say in 50% shares on listing. Another approach investors can take is to book profits to the extent that original investment is recovered and is available for reinvestment.

Just a word of caution at this point. Since grey market is totally informal, it is entirely possible for these rates and assumptions to change if the markets correct further. In any case, investors can make use of a trailing stop loss from top to contain damage while maximizing returns.

Strong fundamentals but concerns remain

For long term investors, it is important to keep fundamental aspects into consideration. Go Fashion is the leading player in women’s bottom-wear brand in India. It also has a better track record of revenue growth, higher operating margin & high Return on equity compared to TCNS Clothing, according to Angel One.

The company performs better than its peers on key operating metrics like revenue/sq ft where its performance is among the best in the industry at around INR17,000/sq ft. as on FY2020. Similarly, it boasts of healthy operating margins of around 21% and Return of Equity (RoE) of nearly 18%.

In the following table, the impact of Covid-19 pandemic is clearly visible in FY2021. Since strict lockdowns were imposed in the country, the company’s stores remained shut for a few quarters. However, the company has reopened its stores, following relaxations in lockdowns. Given the rapid growth demonstrated in the past, the company is likely to continue on its expansion plan in the coming months too.

Go Fashion Financial Performance (in INR crore)

	FY2019	FY2020	FY2021	Q1 FY2022
Revenue	291.0	396.8	282.3	40.3
Expenses	248.8	328.6	285.4	58.7
Net income	30.9	52.6	(3.5)	(19.0)
Margin (%)	10.6	13.3	(1.2)	(47.1)

All in all, Go Fashion post-IPO strategy underlines the importance of booking profits with a stop loss and recovering initial capital for reinvestments.