Launching Diwas Celebration Wear And Opening New Mohey And Twamev Outlets Will Strengthen Future Brand Appeal

Key Takeaways

• Expansion of retail space and new celebration wear lines may boost revenue, brand appeal, and market reach.
  
• Strategic marketing and focus on Tier 2 and 3 cities could improve sales and earnings through diversified offerings and better customer positioning.
  
• Macro challenges, market saturation, rental inflation, and aggressive marketing dependency threaten Vedant Fashions' revenue growth and profitability margins.

Catalysts

Engages in the manufacture, trade, and sale of wedding and celebration wear in India and internationally.

• Expansion of retail footprint by adding approximately 50,000 square feet of net retail area could drive future revenue growth as more stores increase reach and availability.
  
• Introducing new celebration wear offerings such as Diwas and expanding marketing campaigns across multiple channels may enhance brand appeal and increase revenue.
  
• Recovery and focus in Tier 2 and Tier 3 cities, which have shown strong performance, could lead to improved sales volume and revenue.
  
• Strategic ramp-up in marketing initiatives and partnership with leading quick commerce platforms is expected to enhance brand positioning and customer convenience, potentially increasing revenue and net margins.
  
• Growth and focus on brands like Mohey and Twamev, including the opening of new exclusive brand outlets, could diversify product offerings and improve earnings through higher sales and better margin products.

Vedant Fashions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vedant Fashions's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.2% today to 31.1% in 3 years time.
• Analysts expect earnings to reach ₹6.2 billion (and earnings per share of ₹26.11) by about March 2028, up from ₹4.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.5x on those 2028 earnings, up from 47.1x today. This future PE is greater than the current PE for the IN Luxury industry at 21.9x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.69%, as per the Simply Wall St company report.

Vedant Fashions Future Earnings Per Share Growth

Risks

• The subdued performance, especially in the first nine months of FY '25, was attributed to macroeconomic conditions and a quarter with exceptionally low wedding days, impacting revenue growth.
  
• Increased competition and saturation in some markets, such as AP and Telangana, as well as rental inflation, may affect the expansion plans and profitability margins.
  
• The slow recovery and variability in consumer spending, especially in middle-class segments, present a risk to consistent sales growth and net earnings.
  
• Execution risks related to store expansions and the impact of higher-than-expected rental costs could lead to lower net margins and affect the overall financial performance.
  
• The dependency on aggressive marketing campaigns to stimulate demand may not yield immediate returns, posing a risk to maintaining high operating margins in the short term.

Valuation

• The analysts have a consensus price target of ₹1062.0 for Vedant Fashions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1332.0, and the most bearish reporting a price target of just ₹900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹20.0 billion, earnings will come to ₹6.2 billion, and it would be trading on a PE ratio of 62.5x, assuming you use a discount rate of 14.7%.
• Given the current share price of ₹781.6, the analyst price target of ₹1062.0 is 26.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.