Vedant Fashions, which owns ethnic clothing brand Manyavar, has seen its share price rise more than 15 percent to Rs 1,078.95 apiece from the IPO of Rs 866 since the IPO. The research firm ICICI Securities has started covering the share with a purchase valuation that determines the target price of Rs 1,200 each, which implies an upside of 12 percent from the current level. The research firm noted that Vedant Fashions’ flagship brand Manyavar has a dominant position in the IWCW (Indian wedding and celebration wear) brand and has emerged as a category leader and a brand of first recall.
Vedant Fashion’s share price reached a record high of Rs 1,144.35 a share in April. The shares made a modest listing on the stock exchanges on February 16, 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, cash flow generation and RoCEs, and which would also adequately account for the time difference in profitability.
ICICI Securities said that first-mover advantage, scale efficiency and no discounts on Manyavar allow Vedant Fashions to enjoy significantly higher gross margin compared to most other listed brands. “In our opinion, this is the key differentiation for VFL vs peers, which in turn results in higher profitability, more than 40% RoIC / RoCE and superior FCF generation,” it states. The company also noted that along with a high growth potential for teens and an active-light model that the company benefits from, it justifies premium assessments relative to peers.
Vedant Fashions follows a direct sales model for its sales to franchisees, this may result in higher receivables day and timing difference in profitability especially for the new stores opened during the year and makes comparison of reported figures vs peers a little less meaningful, in our view “” Therefore, ICICI Securities believes that key factors to be monitored / evaluated include network additions; SSSG; end-customer sales growth, gross margins; OCF or OCF for EBITDA / PAT conversion; and RoCE. “Vedant Fashions continues to surpass peers even on these parameters., “said the research firm.
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