Q4FY23 Review: Go Fashion: A steady quarter

8 May 2023 , 12:59 PM

Go Fashion’s Q4FY23 results were above IIFL Capital Services’ estimates, driven by slightly higher store additions, discounts’ reversal by LFS partner and lower sub-contracting expenses. Management reiterated its guidance of ~10% SSS growth and 120-130 annual store addition.

Q4 results above estimates: 

Go Fashion’s Q4FY23 sales grew 36% and were 2% above estimate. However, sales were positively impacted by ~6%, owing to discounts’ reversal by LFS partner (Reliance). Ebitda grew 26% and was 7% above estimates, driven by sales beat and lower sub-contracting expenses. Other expenses were up 87% as the company took one-time receivable write-off pertaining to Future Lifestyle and Fashions. The company has added 127 EBOs in FY23, in line with its guidance of 120-130 annual store addition.

Reiterate guidance of 10% SSS growth and 120-130 annual store additions: 

SSS growth of 17% in Q4FY23 comprises 5% volume growth, 6% mix and 6% price hikes. With price hikes anniversarising from Q1FY24 onwards, management is confident of clocking ~10% SSS growth in the medium term, driven by ~5% volume growth and ~5% mix improvement. The company reiterated its annual store addition guidance of 120-130 stores, although there may be some upside here as it adds more people to its business development team. 

Ebitda upgrade of ~2% in FY25/26: 

Analysts of IIFL Capital Services estimate pre IND AS 116 Ebitda margin at 19.2% in FY23 – adjusted for the receivable write-off pertaining to Future Lifestyle and Fashions, the Ebitda margin would be 20%. They factor in slightly higher store additions vs their previous estimate which is driving 1-2% upgrade in sales and Ebitda. Analysts of IIFL Capital Services value Go Fashion at 30x EV/pre IND AS Ebitda (FY25) to yield a target price of Rs1,100. The stock is trading at 38x FY24 EV/Ebitda; which prices in most positives, leaving little room for any execution lapses.

Analysts of IIFL Capital Services forecast sales/Ebitda Cagr of 18%/20% over FY23-26 respectively and maintain ADD rating on the stock with a target price of Rs1,100.