Motilal Oswal's research report on Vedant Fashions
VFL is navigating a prolonged slowdown; the management largely attributes it to macro factors (slowdown in hiring by IT companies, weak discretionary demand in the mid-premium category, etc.) and, to a lesser extent, to higher organized competition in the ethnic wear space. Management indicated that organized ethnic wear stores increased from 500 to 2,500 in the past few years, with part of it driven by VFL’s high profitability. However, the bulk of the new entrants are loss-making, and, of late, the store openings have ebbed. VFL is targeting ~8% SSSG on a steady-state basis, driven by interventions to boost footfalls, improve conversions, and ~3-4% annual ASP increases, while it continues to focus on improving the quality of its retail network. We build in a modest ~5-6% revenue, EBITDA, and EPS CAGR over FY26-28E, primarily led by mid-single-digit SSSG, as net retail area addition could remain modest.
Outlook
Following a 45% correction over the last 12 months, VFL trades at 28x 1-yr FY27E EPS, undemanding for a business expected to generate ~INR6b FCF over FY26-28 with ~17-18% RoE. However, we await signs of a sustained demand recovery before turning constructive. Reiterate Neutral with an unchanged TP of INR420, premised on 25x FY28E EPS.
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Vedant Fashions - 1704026 - moti