GO Fashion (India)

Top-end pricing

Retailer of a range of women’s bottom wear products

Go Fashion (India) is engaged in the development, design, sourcing, marketing, and retailing of a range of women’s bottom wear products under the brand ‘Go Colours’. The company is among the few apparel companies in India to have identified the market opportunity in women’s bottom wear and has acted as a ‘category creator’ for bottom wear. The company had a market share of 8% in the branded women’s bottom wear market in FY2020.

Go Fashion (India) offers apparel in over 50 styles in more than 120 colours.Go Fashion (India) products include churidars, leggings, dhotis, harem pants, patiala, palazzos, culottes, pants, trousers, and jeggings which are sold across multiple categories such as ethnic wear, fusion wear, western wear, athleisure, denims and plus sizes.

The company provides its customers with premium quality products and at a price range that caters across all income segment and price range. Its products range from Rs 225 to Rs 1,599 while the average selling price of its products at exclusive brand outlets in FY2021 was Rs 584.02 and was Rs 619.05 in the 3 months ended Jun 30,2021.

The company has a network of 459 exclusive brand outlets (including 12 kiosks operated and owned by the company and 11 franchise stores) that are spread across 23 states and union territories as of Sep 30,2021. In addition, the company’s distribution channels include large format stores (LFSs) including Reliance Retail Limited, Central, Unlimited, Globus Stores Private Limited and Spencer's Retail among others. Its large format stores have grown from 925 large format stores, as of March 31, 2019, to 1,267 large format stores, as of March 31, 2021, while as of September 30, 2021, the company operated in 1,270 such stores. In addition, the company sells its products on its own website and online marketplaces and through multi-brand outlets.

The company’s inhouse design and merchandise team designs and develops bottom wear products across categories with their deep understanding of consumer requirement, in depth market research and data analysis helping in creating the fit and comfort of its products. The design and merchandising team issupplemented by an extensive sourcing network and the manufacturing network undertaken through 73 suppliers and 42 job workers spread across 11 states and union territories as of September 30,2021.

The company is promoted by Mr Prakash Kumar Sarogi, Mr Rahul Sarogi, VKS Family Trust and PKS Family Trust.

Object of the offer

The offer comprises a fresh issue of 1811594 equity shares at upper price band of Rs 690 and 1908397 equity shares at lower price band of Rs 655 aggregating up to Rs 125 crore by the company and an offer for sale by selling shareholders PKS Family Trust up to 7,45,676 equity shares aggregating Rs 48.84 crore at upper price band of Rs 690 and Rs 51.45 crore at lower price band of Rs 655, VKS Family Trust up to 7,45,676 equity shares aggregating Rs 48.84 crore at upper price band of Rs 690 and Rs 51.45 crore at lower price band of Rs 655, Sequoia Capital India Investments of up to 74,98,875 equity shares aggregating Rs 491.18 crore at the upper price band of Rs 690 and Rs 517.42 crore at lower price band of Rs 655, India Advatage Fund S4 I of up to 33,11,478 equity shares aggregating Rs 228.49 crore at the upper price band of Rs 690 and Rs 216.9 crore at lower price band of Rs 655 and Dynamic India Fund S4 US I of up to 5,76,684 equity shares aggregating Rs 39.79 crore at upper price band of Rs 690 and Rs 37.77 crore at lower price band of Rs 655.

PKS Family Trust pre-issue shareholding was 28.74%, which shall decrease to 26.39% at the upper price band of Rs 690, VKS Family Trust pre-issue shareholding was 28.74%, which shall decrease to 26.39% at the upper price band of Rs 690, Sequoia Capital pre-issue shareholding was 28.73%, which shall decrease to 13.88% at the upper price band of Rs 690, India Advantage Fund S4 I pre-issue shareholding was 12.69%, which shall decrease to 6.13% at the upper price band of Rs 690 and Dynamic India Fund pre-issue shareholding was 1.1%, which shall become nil at the upper price band of Rs 690.

The company proposes to utilize the net proceeds of the fresh issue towards roll out 120 new exclusive brand outlets, amounting to Rs 33.73crore, funding working capital requirements amounting to Rs 61.398crore and the balance in for general corporate purposes.

Strengths

The share of organized retailing within women’s apparel has increased from 19% in FY 2015 to 27% in FY 2020 and is expected to reach 42% by Fiscal 2025. Women’s bottom-wear is the fastest growing category in the women’s apparel segment market and is expected to grow at a CAGR of 12.35% by FY 2025. The organised share of women’s bottom-wear market is expected to reach Rs 9240 crore with a share of 38% in FY 2025 growing at a CAGR of 24.3% until 2025.

The company 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 (Source: Technopak Report). As of May 31, 2021, the company retailed 50 bottom-wear styles in a range of over 120 colours under the brand ‘Go Colors’. Its product portfolio includes churidars, leggings, dhotis, harems, patiala, palazzo, culottes, pants, trousers, and jeggings across multiple categories including ethnic wear, fusion wear, western wear, lounge wear, athleisure, Go Plus and girl’s wear. The company’s diverse product portfolio caters to women across all age groups and girls and physiques covering the entire spectrum of women’s bottom wear spectrum. The company offer customers premium quality products at a price range that caters across all income segments, which allows it to tap customers in tier II and tier III cities as well.

The company has a multi-channel retail presence across India. Its extensive network of stores allows it to cater to women across India and ensures effective penetration of the products it retails.The company retails its products directly to consumers primarily through its network of exclusive brand outlets and as of May 31, 2021, the company operated 450 exclusive brand outlets across 115 cities in 23 states and union territories across India. As of March 31, 2021, the company had the largest network of exclusive brand outlets among key women’s apparel brands in India (Source: Technopak Report). Further, as of Sep 30, 2021, the company also retailed its products through 1,270 large format stores such as Reliance Retail Limited, Central, Unlimited, Globus Stores Private Limited and Spencer's Retail among others, across 499 cities spanning the entire country covering 31 states and union territories. The company also sells its products through online marketplaces and through its own website.

The company has strategically undertaken brand building initiatives to gain visibility with prudent use of resources while incurring limited branding and marketing expenses. The company retails its products under a single brand for improved brand recall and better marketing of the products. Its advertisement and sales promotion expenses represented 1.86%, 1.82%, 2.54% and 4.43% of its revenue from operations in FY 2019, 2020 and 2021 and in the three months ended June 30, 2021, respectively, and yielded among the highest revenues per unit spend in Fiscal 2020 (Source: Technopak Report).

The company has standardised and scalable development model for its exclusive brand outlets based on its know-how and experience. The company opened 305 new stores in the exclusive brand outlet format and more than 400 new stores in the large format stores format in the last three Fiscals across 507 tier I/ II / III / IV cities in India. Its products being core and essential to consumers has enabled it to operate on a business model where it offers limited discounts and sale of its products is typically at full price which in its experience results in greater profitability. Revenues generated from sale of its products at full price were Rs 177.82 crore, Rs 261.07 crore, Rs 143.20 crore and Rs 23.3 crore and accounted for 95.64%, 97.89%, 82.88% and 96.09% of its total revenue from operations in FYs 2019, 2020, 2021 and in the 3 months ended June 30,2021 respectively. The company staffs its exclusive brand outlets with limited people per store which is one among the factors that contribute to its store profitability while ensuring adequate attention to customers. The company’s average selling price has increased from Rs 559.14 in FY 2019 to Rs 584.02 in FY 2021 and was Rs 619.05 in the 3 months ended Jun 30,2021, primarily on account of value-added products including pants, trousers and plus size products that the company has introduced as part of its portfolio. The company’s COCO model of operating its exclusive brand outlets is supported by streamlined store network planning, a robust supply chain network and an efficient staff recruitment and development program.

The company’s store closures in the last three Fiscals (including on account of the impact of COVID-19) are indicative of its ability to identify the right location for its stores and deliver strong operating profits which is reflected in its pre-COVID-19 impacted Same Store Sales Growth. The company closed 15, 18, 41 and five exclusive brand outlets in FYs 2019, 2020 and 2021 and in the three months ended June 30, 2021, respectively, while its Same Store Sales Growth was 19.97% and 11.37% in FY 2019 and 2020, respectively.

The company offers customers premium quality products at affordable prices and in FY 2021, more than 88.32% of its products were retailed at a price lower than Rs 1,049. The company has been able to achieve its value proposition to customers through low procurement and operating costs. The company outsource the manufacture of its products and thereby do not incur manufacturing costs. The company has been able to build and manage an extensive sourcing network to support its product development teams. As of September30, 2021, the company has a network comprising over 120 suppliers and job-workers across India many of whom we have longstanding relationship with its suppliers and job-workers.

The company has automated the entire procurement and supply chain operation through its enterprise resource planning system, which allows it to maintain flexibility and enables it to meet its requirements in an efficient manner without relying on any one vendor, supplier, or factory.

The company’s innovation, research and data driven design process ensures that the company introduce new and differentiated products that address evolving market trends and customers’ preferences.

Weaknesses

The Indian women’s apparel industry, particularly for ethnic and non-western apparel, is highly fragmented with several regional brands and retailers present in local markets across the country. The company’s products compete with local retailers, non-branded products, economy brands and products of other established brands. According to the Technopak Report, the branded womenswear segment in India is dominated by certain large national and regional players like TCNS (with brands such as W, Aurelia, Elleven, and Wishful), BIBA, Global Desi, AND, H&M, Zara, M&S, Fabindia, Soch and Twin Birds (Source: Technopak Report). The company also face competition from private in-house label brands launched by large format stores and online only fashion brands.

The company’s scale of operations remained moderate with entire revenues derived from a single brand and single clothing segment (women’s bottom-wear segment).

The apparel retail business is working capital-intensive in nature with high inventory holding requirements in all the stores across a wide product range. The company’s working capital intensity averaged at 39% during the past four years.

The impact of the ongoing COVID-19 pandemic on its business and operations has been significant and any future waves can again affect it adversely.

The company manages its inventory and logistics as well as its entire supply chain for all its channels from its warehouse in Tirupur, Tamil Nadu, making it over-dependent on that location.

Valuation

For the 3 months ended Jun 30,2021, sales were up by 200.8% to Rs 31.0 crore. Operating loss declined by 61.1% to Rs 5.9 crore. Other income decreased by 10.9% to 9.3 crore while interest cost increased 10.6% to Rs 5.7 crore and depreciation increased by 10.0% to Rs 16.0 crore. Loss before tax declined to Rs 18.4 crore as against loss of Rs 24.5 crore in the corresponding period of previous period. Net loss stood at 19.0 crore as against net loss of Rs 8.6 crore.

For FY 2021, sales were down by 36.1% to Rs 250.7 crore primarily due to impact of Covid first wave. OPM declined by 1378 bps to 18.49% which led to 63.4% decline in operating profit to Rs 46.3 crore. Other income increased 554.6% to 31.6 crore while interest cost increased24.9% to Rs 20.6 crore and depreciation increased by 29.9% to Rs 60.5 crore. Loss before tax stood at 3.1 against profit before tax of Rs 68.3 crore in FY2020. Tax expenses declined by97.4%to Rs 0.4 crore. Net loss stood at 3.5 crore as against net profit of Rs 52.6crore.

At the higher price band of Rs 690, the offer is made at around 14.43 times post-IPO EV/TTM Sales (till June 21). Listed industry peers of the company are Trent, Aditya Birla Fashion Retail Limited, TCNS clothing, Lux Industries and Page Industries.

In comparison Page Industries trades at EV/S of 14.55 times TTM (till June 21), Trent trades at EV/S of 13.96 times TTM (till June 21), Aditya Birla Fashion trades at EV/S of 5.43 times TTM (till June 21), TCNS trades at EV/S of 7.48 times TTM (till June 21) and Lux Industries trades at EV/S of 6.03 times TTM (till June 21). Among the profit-making companies, Page Industries trades at P/E of 114.6 times TTM (till June 21) and Lux Industries trades at P/E of 35.7 times TTM (till June 21). All listed peers are much larger in size and stature compared to Go Fashion. Asking for valuation at which Page Industries and Trent are trading is just too much for Go Fashion.