Brokerage initiates coverage on Vedant Fashions with ‘Buy’ rating, sees 27% upside

The brokerage has initiated coverage on the stock with a ‘Buy’ rating, and with a target price of ₹1,400, suggesting a potential upside of 27 per cent from the current market levels.

The stock of VFL is trading at P/E and EV/EBITDA of 42.8 times and 27.2 times on FY25E, respectively. Motilal Oswal ascribes a forward P/E of 55x, at 10 per cent premium to our average retail coverage multiple, to arrive at its TP.

The brokerage expects the company to report a revenue/PAT CAGR of 21 per cent/22 per cent over FY23-25, driven by 15 per cent footprint additions.

Vedant Fashions shares surge 5%

Shares of Vedant Fashions Ltd settled 3.23 per cent higher at ₹1,140 apiece in Friday’s trade. The stock hit an intraday high of ₹1,165 , rising 5.36 per cent on BSE after Motilal Oswal initiated coverage on the ethnic wear company.

The stock gained 14 per cent in one year but lost 14.56 per cent since the beginning of 2023. Market capitalization of Vedant Fashions stood at ₹27,700 crore on BSE.

The stock hit a 52-week low of ₹898.95 on 30 March, 2022 and a 52 week high of ₹1501 on 6 October, 2022.

Key growth levers

Scaling-up emerging brands especially Mohey; 10 percent of revenue, and catering to the sizeable women’s celebration wear market 5 times the size of men’s segment at ₹735 billion as of FY20, can be the key growth levers with improving operating metrics and plans to add independent stores.

Further, expanding Twamev through up-selling and Manthan to capture the value fashion segment could underpin revenue growth moving ahead.

The Indian ethnic wear business is a difficult business to replicate, given its high customer needs and complex inventory management. This gives VFL an inherent competitive advantage.

It has a large-scale multi-year growth opportunity, no intense competition, and strong margin and ROCE profile.

Further, VFL’s franchisee model ensures limited store-related investments and working capital needs.

Notably, the management’s disciplined growth approach, as evident from Mohey and Twamev’s gradual scale-up, has ensured it does not face the risk of bloated working capital and aggressive write-downs, which can hamper its profitability and retract scale.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.