Expansion Into Dubai And Larger Stores Will Attract More Customers

Key Takeaways

• Strategic store expansion, including international growth in Dubai, aims to boost revenue through increased consumer reach and improved sales volumes.
  
• Enhanced product mix and efficient inventory management target higher average selling prices and cash flow stability, supporting revenue and margin growth.
  
• Increased competition, muted consumer demand, and geographic concentration risks could negatively impact Go Fashion's revenue growth, market share, and profitability.

Catalysts

Engages in the design, development, sourcing, marketing, and retailing of women’s and girl’s bottom-wear products under the Go Colors brand in India.

• The company plans to strategically open new stores, including its first international outlet in Dubai by April 2025, providing revenue growth opportunities through market expansion and increased consumer reach.
  
• Go Fashion's focus on improving product mix, particularly its value-added products, results in a higher average selling price and consumer acceptance, which can enhance revenue and maintain healthy gross margins.
  
• Inventory management improvements and maintaining efficient working capital are expected to lead to over 50% EBITDA conversion into operating cash flows, boosting overall earnings stability.
  
• Expansion of larger, experience-based stores to replace smaller outlets aims to attract more customers and increase sales volume, positively impacting same-store sales growth (SSSG) and overall revenue.
  
• The implementation of a new variable incentive structure for store employees is designed to drive revenue growth and improve store-level performance, potentially enhancing net margins through increased productivity and sales efficiency.

Go Fashion (India) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Go Fashion (India)'s revenue will grow by 16.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 13.8% in 3 years time.
• Analysts expect earnings to reach ₹1.8 billion (and earnings per share of ₹33.44) by about February 2028, up from ₹866.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.3x on those 2028 earnings, up from 50.4x today. This future PE is greater than the current PE for the IN Specialty Retail industry at 36.3x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.06%, as per the Simply Wall St company report.

Go Fashion (India) Future Earnings Per Share Growth

Risks

• The weaker-than-expected apparel retail demand, driven by an underwhelming festive season and decreased consumer spending on discretionary items, has flattened same-store sales growth, potentially impacting future revenue growth.
  
• Heightened inflation leading customers to postpone discretionary apparel purchases could continue to suppress consumer demand, thereby impacting both revenue and net margins.
  
• The company's reliance on specific geographic clusters for expansion might lead to market saturation and cannibalization, potentially affecting revenue growth and store performance.
  
• The closure of stores, especially the smaller stores, and consolidation efforts reflect challenges in maintaining throughput and profitability in certain locations, which could impact overall earnings.
  
• Increasing competition in the value-based fashion retail segment could potentially diminish market share and put pressure on pricing strategies, affecting revenue and net margins.

Valuation

• The analysts have a consensus price target of ₹1215.0 for Go Fashion (India) 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 ₹1317.0, and the most bearish reporting a price target of just ₹1000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹13.1 billion, earnings will come to ₹1.8 billion, and it would be trading on a PE ratio of 55.3x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹808.25, the analyst price target of ₹1215.0 is 33.5% 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.