Tactical Network Expansion And Celebrity Campaigns Will Boost Sales And Drive Earnings Growth

Key Takeaways

• Strategic marketing and celebrity endorsements are poised to elevate brand visibility and sales, supporting revenue growth.
  
• New brand launches and digital-first initiatives aim to penetrate new segments and drive incremental earnings growth.
  
• High real estate costs and potential brand cannibalization could pressure margins and earnings amid network expansion delays and market volatility.

Catalysts

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

• Vedant Fashions anticipates significant network expansion in the second half of FY '25 after a muted first half, leading to increased revenue potential as new retail spaces open.
  
• The company is enhancing its marketing strategies with new campaigns and celebrity endorsements, which could boost brand visibility and drive higher sales, positively impacting revenues.
  
• The launch of new brands like Diwas and strategic focus on becoming a digital-first brand are expected to penetrate new market segments and drive incremental earnings growth.
  
• Increased focus on product mix improvement and strategic category expansions, such as new perfume launches, aim to elevate average transaction value and footfall, supporting revenue growth.
  
• As festive and wedding seasons normalize with business returning to usual patterns, Vedant Fashions' inventory positioning and operational readiness are expected to support better revenue and earnings growth.

Vedant Fashions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vedant Fashions's revenue will grow by 18.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.9% today to 31.8% in 3 years time.
• Analysts expect earnings to reach ₹7.1 billion (and earnings per share of ₹29.67) by about December 2027, 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 71.4x on those 2027 earnings, down from 80.7x today. This future PE is greater than the current PE for the IN Luxury industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.19%, as per the Simply Wall St company report.

Vedant Fashions Future Earnings Per Share Growth

Risks

• The slow network expansion in H1 FY '25 and expectations of rollovers into the next period indicate potential delays in achieving sales growth targets, potentially affecting future revenue projections.
  
• The existing high real estate rates impacting retail expansion could lead to increased operational costs, affecting net margins if sales growth does not offset these expenses.
  
• The increase in receivable days, attributed to earlier Diwali inventory buildup, could indicate working capital management challenges, potentially impacting net margins and liquidity status.
  
• The potential cannibalization between Vedant Fashions' Manyavar and Diwas brands could dilute brand equity and sales concentration, potentially impacting overall company earnings.
  
• High competitive intensity and market volatility, evidenced by frequent store openings and closures by competitors, could create pressure on revenues and market share retention.

Valuation

• The analysts have a consensus price target of ₹1425.33 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 ₹1600.0, and the most bearish reporting a price target of just ₹1010.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹22.4 billion, earnings will come to ₹7.1 billion, and it would be trading on a PE ratio of 71.4x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹1337.75, the analyst's price target of ₹1425.33 is 6.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.