Q3FY24 Review: Vedant Fashions: A tepid performance, but largely priced in

30 Jan 2024 , 08:14 PM

Vedant Fashions (Manyavar) reported Q3FY24 results above analysts of IIFL Capital Services estimates on weak expectations. Same store sales (SSS) declined by 2% on a favourable base, amid a tepid consumption environment, in addition to higher number of inauspicious Shraddh days in Q3 this year. The stock has corrected ~25% from its peak and is now trading at the lower end of the consumer discretionary pack even though 4 year SSS performance is broadly in-line with peers. Manyavar is a robust business model (Ebitda margin of ~40% / post tax ROIC of ~60%) going through a rough patch. Reiterate BUY with a target price of Rs1,300. 

Above estimates on weak expectations: 

Manyavar’s sales/Ebitda/PAT grew 7.5%/7.8%/4.9% and were 3%/7%/6% above analysts of IIFL Capital Services estimates. Customer sales grew 11.1% with SSS declining by 2.1% even on a favourable base as tepid consumer sentiments weighed on demand in addition to the inauspicious Shraddh period (14 days falling in Q3 this year vs. entire 16 days in Q2 last year). Lower job-work charges and employee costs (director’s remuneration moved to a more variable structure) resulted in a flattish margin performance, despite weak SSS. 

Demand softness continues in January: 

Management downplayed the impact of competition, both organized and unorganized, with demand being more impacted in tier 2/3 towns and in non wedding related categories. The 60 day festive period starting from Navratri witnessed a 31% overall customer sales growth and 17% SSS growth vs. comparable period in the base. The last 15 days of December were weaker than expected and the weakness has continued in January so far as well. 

EPS downgrade of 1%/5%/6%: 

Analysts of IIFL Capital Services factor in the softer demand trends for Q4 and build in a more gradual recovery in FY25, resulting in EPS downgrade of 1%/5%/6% for FY24/25/26. Manyavar is witnessing a poor FY24, amid a weak discretionary demand environment and an unfavourable base. The performance over FY20-24 in terms of SSS or revenue psf has been broadly in-line with most peers in the retail space. The stock has corrected ~25% from its peak and is now trading at 56x adj FY25 EPS, – at a discount to most retail peers. Launch of Mohey flagship EBO is expected in Q4FY24 and success in this format would add further growth levers. Analysts of IIFL Capital Services reiterate BUY rating with a target price of Rs1,300.