Q1FY24 Review: Vedant Fashions: Lower no. of wedding dates impacts performance

28 Jul 2023 , 11:57 AM

Vedant Fashions (Manyavar) reported a weak Q1FY24 performance, which missed Analysts of IIFL Capital Services estimates slightly. SSS declined by 22.4% due to lower number of wedding dates, while retail area addition was strong at 22% YoY. During the quarter, Manyavar launched Twamev EBOs and plans to launch Mohey EBO in early Q3. Analysts of IIFL Capital Services downgrade their EPS estimates by 3-5% for FY24-26 to factor in the weak performance. They forecast 14% EPS Cagr over FY23-26 and maintain BUY rating with a target price of Rs1,350. 

A weak quarter: 

During the quarter, Manyavar reported a 15.6% decline in customer sales and SSS decline of 22.4%. At 4%, net sales decline was lower due to acceleration in retail area addition (up 22% YoY). The SSS decline was primarily due to lower number of wedding dates (~20-23 dates in Q1FY24 vs ~37 in the base), while a sluggish demand environment would have had some impact as well. Performance of stores, where organised competition has come up in their vicinity in recent times, is not different vs rest of the stores. Further, there have been instances in past (FY17) where Q1 sales have suffered due to lower number of wedding dates, followed by a strong rebound in H2. 

Twamev EBOs launched:

Manyavar launched 3 EBOs in its premium end brand – Twamev, across 3 cities. So far, the performance has exceeded expectations and the company is planning to open 5 more stores in FY24 (2 already signed). ASP/ABV in this format are ~2-3x that of Manyavar/Mohey. On the other hand, Mohey EBO remains in the pipeline with a launch expected in early Q3FY24. 

EPS downgrade of 3-5% over FY24-26: 

Unfavourable seasonality, a high base and a sluggish demand environment (to a lesser extent) have impacted Manyavar’s performance in Q1 and Q2 being the weakest quarter traditionally, a revival in growth is not expected before Q3. However, the first 2 of the 3 aforementioned factors are reversible; Analysts of IIFL Capital Services expect a strong bounce-back in H2. While valuation is on the expensive side (56x FY25 EPS), Manyavar is a rare combination of a high-margin, high-ROIC company in the Apparel Retail space with a long run-way for growth. Success in Twamev and Mohey would add further legs to growth in the medium term. Analysts of IIFL Capital Services downgrade their EPS by 3%/5%/5% for FY24-26 to factor in the weak Q1 performance.