Go Fashion IPO: Should you subscribe?

Go Fashion (India) Limited (Go Fashion) IPO opens for subscription on 17th November. The company is looking to raise up to Rs 1,023 crore through the public issue. Here are the details:

About the IPO

Go Fashion Limited IPO Date: 17 November - 22 November 2021

Go Fashion Limited IPO Price band: Rs 655 - Rs 690

Issue Size: Rs 1013.61 crore (Fresh Issue of Equity shares aggregating up to Rs 125 crore and Offer for sale of 12,878,389 Equity shares)

Post Issue Market Cap: Rs 3,544 crore – Rs 3,727 core

Reservation: QIB 75%, Retail - 15%, NII 15%

Bid lot: 21 shares, and in multiples of 21 shares

Objectives of the issue

The net proceeds from the IPO will be utilized for the following purposes :

• To part finance its plans for funding roll out of 120 new Exclusive Brand Outlets (EBOs) - Rs 33.73 crore
• Working Capital - Rs 61.40 crore
• General Corporate Purpose

About Go Fashion

• Go Fashion was incorporated in 2010, and it is one of India's largest women's bottom wear brands.
• They are engaged in the development, design, sourcing, marketing, and retailing of a range of women's bottom-wear products under the brand - 'Go Colors'. 
• It offers one of the widest portfolios of bottom-wear products among women's apparel retailers in terms of colors and styles. Go Colors sold bottom-wear in over 50 styles in more than 120 colors.
• It is the first company to launch a brand exclusively dedicated to women's bottom-wear category and they have leveraged this advantage to create a direct-to-consumer brand with a diversified and differentiated product portfolio of premium quality products at competitive prices.
• They have 450 exclusive brand outlets (EBOs). Stores are spread across 23 states and union territories in India as of 31 May 2021. It plans to increase its outlets from the current 450+ to over 2000+ in the next five-six years.
• Its distribution channels include large format stores (LFSs) including Reliance Retail, Central, Globus Stores, Unlimited, and Spencer's Retail among others.

Product Portfolio

Below are different categories in which Go Fashion creates products:

• Ethnic Wear - Churidar, Patiala, Kurti-pants, salwar, Silk Pant, and dhoti
• Western Wear - Leggings, Cropped Jegging, Jeans, Cargo Pants, Trousers, Ponte Pants, Track Pants, Culottes, Treggings, and Shorts 
• Fusion Wear - Jeggings, Palazzos, Pants, and Harem Pants 
• Athleisure - Leggings, Track Pants, and Joggers 
• Denims - Jeggings, Joggers, Jeans, Denim Palazzos, Pants, Denim Culottes and Capris
• Lounge Wear - Lounge Pants, Lounge Knit Pants, Lounge Capris, and Lounge Shorts
• Go Plus - Churidars, Leggings, Jeggings, Pants and Palazzos 

Listed Peers

The Indian women's apparel industry is highly fragmented with several regional brands and retailers present in local markets across the country. Go Fashion's products compete with non-branded products, local retailers, and products of other established brands. Some of the brands that the company competes with are 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.

The listed peers include Page Industries, Trent Limited, Bata India Limited, Aditya Birla Fashion & Retail Ltd, TCNS Clothing Co Ltd.

• Among the listed peers, Aditya Birla Fashion and Page industries are the biggest players. Compared to them, Go Fashion is a very small player. One of the reasons is that other companies are into a number of different products also. 
• The total revenue for Aditya Birla Fashion is Rs 5,322 crore, while that of Go Fashion is only Rs 282 crore (FY21).
• Among the listed peers, only Page Industries is profitable for FY21 with an EPS of 305.35, while GO Fashion has EPS of (0.68).
• RoNW of Page Industries is 38.5%, while that of Go Fashion is (1.25)%.

Financials

• The revenue for FY21 has declined compared to previous years, mainly because of COVID, taking the figure to lower than FY19 revenue. 
• In Q1 FY22, Go Fashion reported a loss of Rs 19 cr on a revenue of Rs 31 cr..
• The EBITDA and EBITDA Margin were the highest among key women’s apparel players in India in FY20.
• They have grown their EBO store network at a CAGR of 16.12% between FY19 and FY21.
• Go Fashion’s revenue from operations from online channels has grown significantly at a CAGR of 82.21% - from Rs 3.60 crore in FY19 to Rs 11.94 crore in FY21.
• In FY19, FY20, and FY21, their advertisement and sales promotion expenses were 1.86%, 1.82%, and 2.54%, of its revenue from operations, respectively.

Key Metrics

• The big takeaway from the table above is that although Go fashion is expanding its footprint with good store growth and new cities entered, the economics per store is worsening with average capex increasing and revenue per store declining.

USPs

Well-diversified product portfolio - Go Fashion has 50 bottom wear styles in a range of over 120 colors under the brand Go colors. They are among the first companies to launch a bottom wear brand in the organized market. Given that bottom-wear is a ‘core essential’, demand for their products is consistent across regions where their products are sold.

Multi-channel pan-India distribution - They have a multi-channel retail presence in India. They retail their products directly to consumers primarily through their network of EBOs. They also retailed their products through 1,270 LFSs and also sell their products through online marketplaces and their website. 

Strong unit economies - Go Fashion has a standardized and scalable development model for their EBOs based on their know-how and experience. They can identify and determine the optimum location and size of a store as well as manage rental costs.

Technology-driven supply chain management - They have automated their entire procurement and supply chain operation through their ERP system. It allows them to maintain flexibility and enables them to meet their requirements efficiently without relying on any vendor, supplier, or factory. They manage their inventory and logistics and their entire supply chain for all their channels from their warehouse in Tirupur.

Growth Potential

Additional product launches and same-store sales growth - Company’s existing portfolio coupled with its ability to launch new products that address the requirements of women’s bottom-wear ensures that they are better equipped to offset any adverse impact.

Expand retail network - They intend to follow the COCO model that will ensure better operational control over their stores. As part of their growth strategy, they plan to expand their EBO network in other regions across India. By having their products be reasonably priced and essential, they hope to increase their footprint and scale of operations across India.

Focus on an online channel - With increased internet penetration, increased usage of smartphones, the convenience provided by e-retailing in terms of payment and return policies as well as discounts offered, coupled with a low base effect is enabling e-retailing’s sharp growth in recent years. The company proposes to make investments in digital channels to build an omnichannel engagement experience for their customers and have a dedicated team for their e-commerce operations. 

Risks

Failure to maintain brand awareness - Brand awareness is essential to the continued growth and financial success of the company. Its operations are influenced by brand marketing and advertising initiatives. If the company is unable to effectively market its products and brand, or there is deterioration in public perception of its brand, it could affect customer footfall and consequently impact its financial condition and cash flows.

The risk associated with leasing real estate - Go Fashion sells products through exclusive brand outlets (EBO). EBOs operate on leased properties, and hence the company is exposed to the market conditions of the retail rental market. If they are unable to renew leases for stores on acceptable terms, they will have to close or relocate the relevant stores. It would eliminate the sales that those stores would have contributed to its revenues during the period of closure, and could be subject to renovation and other costs and risks.

Unable to expand retail network - The company's ability to expand and grow sales significantly depends on the reach and effective management of the retail network. If they are not able to obtain the locations at favorable lease rentals or lease periods or at the time and place that they desire, it may hurt their financials.

Go Fashion IPO Review: INDmoney Analysis

Go Fashion is among the largest women’s bottom-wear brands in India, with a market share of approximately 8% in the branded women’s bottom-wear market in Fiscal 2020. Although Go Fashion was on a good growth trajectory pre covid, it was hit hard by the pandemic with store closures and the company is still seeing prolonged effects with buyers preferring online stores to brick & mortar. Hence the company reported Rs 19 cr loss in April-June 2021 period. However, the company is trying to adapt to the situation with promoting sales through online channels.

Since the company reported a loss in FY21, we cannot value Go Fashion on a price to earnings basis. Considering EV/EBITDA which is 79 for FY21, the company seems potentially overvalued, also considering the fact that it is loss making. However, only Page Industries among the listed peers reported a profit in the recent fiscal.

Given negative profitability, potentially high valuation, and poorer return ratios as compared to its peers, we remain ‘Neutral’ on the long-term prospects of the issue. Given a fancy for IPOs in the ongoing season, the company may still see strong subscription numbers. Hence, investors looking for listing gains can subscribe to the issue.