Vedant Fashions score – Cut back: Properly positioned to faucet alternatives

We provoke protection on Vedant Fashions (VFL) with a Cut back score and DCF-based FV of Rs 1,000. VFL is uniquely positioned to learn from rising spends on branded attire. Additional, we like its excessive gross margins, asset-light franchise-driven mannequin and powerful model join with clients. We forecast wholesome income/EBITDA/PAT CAGR of 21%/20%/ 20% over FY2022-25E, regular return ratios and FCF era. Scale-up of newer manufacturers might be instrumental in driving medium-term progress. At 57X FY2024E P/E, we discover valuations full.

Largest Indian marriage ceremony and celebration put on participant: VFL is finest recognized for its vary of Manyavar branded males’s marriage ceremony and celebration put on. Manyavar has steadily expanded its share of the lads’s celebration put on market. Solely 15-20% of the celebration put on market is at the moment organised; coupled with rising aspirations and spends on marriage ceremony put on, we consider the goal alternative for VFL is massive.

Manyavar brand-led asset-light mannequin with robust vendor and franchisee relationships: VFL operates an asset-light enterprise mannequin pushed by franchisee-operated EBOs. It had 595 EBOs as of March 2022 overlaying 223 cities and cities in India in addition to 12 worldwide places. VFL enjoys robust relationships with distributors (for jobbing, materials procurement) in addition to 300+ franchisees who spend money on the EBOs. Manyavar is the flagship model constituting 84.2% of gross sales in FY2021.

Forecast first rate income/EBITDA/ PAT CAGR over FY2022-25E: We mannequin wholesome 21% and 20% income and PAT CAGR over FY2022-25E pushed by regular SSSG of seven% (FY2024 onwards), larger EBO footprint, regular gross margins of 65-67% and progress within the e-commerce channel. VFL had wholesome web money stability of Rs 5.2 bn as of March 2022, which we forecast to go as much as Rs 13.8 bn by March 2025.

We just like the mannequin and the chance however discover valuations wealthy: We provoke protection with a Cut back score and a DCF-based FV of Rs 1,000. Our DCF bakes in wholesome progress assumptions: FY2022-45E income CAGR of 15%, gradual EBIT margin enlargement to 40%, WACC of 12.5% until FY2033 (decrease WACC thereafter) and terminal progress fee of 5.5%. Lack of demand, incapability to handle the franchise community, provide chain/vendor points and incapability to deal with evolving buyer preferences are key dangers.

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