Vedant Fashions, which owns ethnic wear brand Manyavar, has seen its share price rally more than 15 per cent to Rs 1,078.95 apiece from the IPO price of Rs 866 since listing. Research firm ICICI Securities has initiated coverage on the stock with a buy rating, pegging the target price of Rs 1,200 apiece, implying an upside of 12 per cent from current levels. The research firm noted that Vedant Fashions’ flagship brand Manyavar commands dominant position in the branded IWCW (Indian wedding and celebration wear) market and has emerged as a category leader and a brand of first recall.
Vedant Fashions stock price hit an all-time high of Rs 1,144.35 apiece in April. The stocks made a modest listing on stock exchanges on 16 February 2022, opening at Rs 938 per share. ICICI Securities said that at a target price of Rs 1,200, the stock would trade at 56x Jun’24E P/E, given Vedant Fashions’ industry-leading growth, profitability matrix, cashflow generation and RoCEs and which would also adequately factor timing difference on profitability.
ICICI Securities said that first-mover advantage, scale efficiencies and no discounts on Manyavar allows Vedant Fashions to enjoy significantly higher gross margin vs most other listed brands. “This, in our view, is the key differentiation enjoyed by VFL vs peers, which in turn results in higher profitability, more than 40% RoIC / RoCE and superior FCF generation,” it said. The firm also noted that coupled with high-teens growth potential and asset-light model, which the company enjoys justifies premium valuations vs peers.
“Vedant Fashions follows an outright sale model for its sales made to franchisee, this may result in higher receivables day and timing difference on profitability especially for the new stores opened during the year and makes comparison on reported numbers vs peers little less meaningful, in our view,” it said. Accordingly, ICICI Securities believes key factors which need to be monitored/evaluated include network additions; SSSG; end-customer sales growth, gross margins; OCF or OCF to EBITDA/PAT conversion; and RoCE. “Vedant Fashions continue to outperform peers even on these parameters.,” the research firm said.
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