India Equity Research Retail November 14, 2022

VEDANT FASHIONS
RESULT UPDATE

KEY DATA
Rating HOLD
Ticks off all boxes, barring valuation
Sector relative Neutral
Price (INR) 1,342
12 month price target (INR) 1,385 Vedant Fashions (VFL) posted another good showing with SSSG of 6.7%
Market cap (INR bn/USD bn)
Free float/Foreign ownership (%)
326/4.0
51.7/31.5
(adj)/35% versus Q2FY22/Q2FY20. Margins improved yet again and
What’s Changed now seem to be consistently clocking this run rate (EBITDA margin:
Target Price 
Rating/Risk Rating - 47%). Store expansion picked up with addition of 23, after a muted
Q1FY23 (uptick of only eight stores). VFL revealed limited information
QUICK TAKE
on Mohey, but stated SSSG for the brand is industry-leading.
We roll over to FY24 and maintaining our target PE Of 65x gives us a
TP of INR1,385 (INR1,310 earlier). We maintain HOLD. By
performance, the company is staying the course but valuations for us
factor the same. Superior growth trajectory (potentially via Mohey)
would be the triggers for a further re-rating.
FINANCIALS (INR mn) Revenue traction strong; margins continue to remain robust
Year to March FY22A FY23E FY24E FY25E
Revenue increased by 24% YoY clocking an SSSG of 4% YoY/35% higher than Q2FY20.
Revenue 10,408 13,709 16,924 20,213
EBITDA 4,959 6,658 8,258 9,777
Adjusting for store renovation, SSSG rose by 6.7% YoY. Sales to customers stood at
Adjusted profit 3,149 4,120 5,172 6,350 INR3bn, 73% higher than Q2FY20. Despite inflation, VFL managed to improve gross
Diluted EPS (INR) 13.0 17.0 21.3 26.2 margin further (~170bp QoQ/190bp YoY) to 77% (ex-job charges), mainly driven by
EPS growth (%) 142.2 30.8 25.6 22.8 efficiencies. Employee cost stayed flat QoQ while other expenses decreased 12%
RoAE (%) 29.0 33.6 33.3 32.5
QoQ. The company thus reported an EBITDA margin of 46.7% (Q2FY22: 45.6%). The
P/E (x) 103.3 78.9 62.9 51.2
EV/EBITDA (x) 30.4 22.5 17.7 14.6
margin run rate is higher than the 42–43% VFL was delivering pre-covid—better still,
Dividend yield (%) 0.3 0.4 0.5 0.6 its seems to be sustaining. EBITDA increased by 27% YoY and PAT 30% YoY.

Store addition ramps up; Mohey clocks highest SSSG across brands
After a muted uptick in Q1FY23, store addition ramped up with an addition of 23
EBOs (Q4FY22: 17, Q1FY23: 8). Management highlighted that International business
is 128% higher versus Q2FY20. All tiers of cities have seen similar growth versus pre-
covid; metro cities could be slightly higher. During covid, non-metro cities were
seeing a better performance. By brand, Mohey is beating SSSG performance on a
company level, whereas Mebaaz has been doing very well and has a strong connect
in AP and Telangana. For Twamev VFL has signed up two stores. Gross margin for
this brand is slightly lower than Manyavar at this point in time.

Outlook and valuation: Priced to perfection; maintain HOLD

Explore: We are rolling over the valuation to FY24E and keeping the target PE at 65x, yielding
a TP of INR1,385 (INR1,310 earlier); retain ‘HOLD’. The stock is trading at 63x FY24E
PE. By performance, VFL is staying the course but we believe its valuation factors
that in. Superior growth trajectory would be the trigger for a further re-rating.
Financial model Podcast Financials
Year to March Q2FY23 Q2FY22 % Change Q1FY23 % Change
Net Revenue 2,469 1,999 23.5 3,250 (24.0)
EBITDA 1,154 912 26.6 1,631 (29.2)
Adjusted Profit 690 532 29.7 1,009 (31.6)
Corporate access Video
Diluted EPS (INR) 2.8 2.2 29.6 4.2 (31.6)

Nihal Mahesh Jham Abneesh Roy Yash Mehta

+91 (22) 6623 3352 +91 (22) 6620 3141
Nihal.Jham@nuvama.com Abneesh.Roy@nuvama.com Yash.Mehta@nuvama.com

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 VEDANT FASHIONS

Financial Statements
Income Statement (INR mn) Balance Sheet (INR mn)
Year to March FY22A FY23E FY24E FY25E Year to March FY22A FY23E FY24E FY25E
Total operating income 10,408 13,709 16,924 20,213 Share capital 243 243 243 243
Gross profit 7,740 10,282 12,608 14,958 Reserves 10,585 13,469 17,089 21,534
Employee costs 575 672 812 1,011 Shareholders funds 10,827 13,711 17,332 21,777
Other expenses 2,206 2,952 3,538 4,170 Minority interest 0 0 0 0
EBITDA 4,959 6,658 8,258 9,777 Borrowings 0 0 0 0
Depreciation 944 1,106 1,329 1,480 Trade payables 730 891 1,122 1,366
Less: Interest expense 284 367 453 529 Other liabs & prov 2,005 1,966 2,387 2,818
Add: Other income 499 307 420 698 Total liabilities 17,685 21,876 27,244 33,416
Profit before tax 4,230 5,493 6,897 8,466 Net block 746 723 692 652
Prov for tax 1,081 1,373 1,724 2,117 Intangible assets 4,401 4,773 5,139 5,441
Less: Other adj 0 0 0 0 Capital WIP 0 0 0 0
Reported profit 3,149 4,120 5,172 6,350 Total fixed assets 5,147 5,496 5,831 6,093
Less: Excp.item (net) 0 0 0 0 Non current inv 1,003 1,203 1,203 1,203
Adjusted profit 3,149 4,120 5,172 6,350 Cash/cash equivalent 4,160 5,355 8,368 12,196
Diluted shares o/s 243 243 243 243 Sundry debtors 3,967 5,621 6,939 8,287
Adjusted diluted EPS 13.0 17.0 21.3 26.2 Loans & advances 314 411 508 606
DPS (INR) 3.9 5.1 6.4 7.8 Other assets 3,079 3,564 4,169 4,803
Tax rate (%) 25.6 25.0 25.0 25.0 Total assets 17,685 21,876 27,244 33,416

Important Ratios (%) Free Cash Flow (INR mn)

Year to March FY22A FY23E FY24E FY25E Year to March FY22A FY23E FY24E FY25E
Manyavar (% YoY) 80.0 35.0 20.0 16.0 Reported profit 3,149 4,120 5,172 6,350
Mohey (% YoY) 75.0 55.0 45.0 40.0 Add: Depreciation 944 1,106 1,329 1,480
Others(% YoY) 39.1 40.0 40.0 30.0 Interest (net of tax) 212 275 340 397
EBITDA margin (%) 47.6 48.6 48.8 48.4 Others (346) (216) (307) (566)
Net profit margin (%) 30.3 30.1 30.6 31.4 Less: Changes in WC 450 1,908 965 995
Revenue growth (% YoY) 84.3 31.7 23.4 19.4 Operating cash flow 3,509 3,378 5,569 6,665
EBITDA growth (% YoY) 104.0 34.3 24.0 18.4 Less: Capex (109) 100 100 100
Adj. profit growth (%) 136.9 30.8 25.6 22.8 Free cash flow 3,618 3,278 5,469 6,565

Assumptions (%) Key Ratios

Year to March FY22A FY23E FY24E FY25E Year to March FY22A FY23E FY24E FY25E
GDP (YoY %) 7.0 6.0 5.5 6.4 RoE (%) 29.0 33.6 33.3 32.5
Repo rate (%) 3.5 4.0 4.0 4.0 RoCE (%) 41.5 47.8 47.3 46.0
USD/INR (average) 73.0 74.5 80,0 78.0 Inventory days 167 167 164 166
Store Area (mn sq.ft) 1.3 1.4 1.6 1.8 Receivable days 133 128 135 137
Revenue (INR/Sq.ft) 11,397.0 13,754.7 15,129.1 17,615.2 Payable days 84 86 85 86
Inventory (% of RM) 53.6 50.0 50.0 50.0 Working cap (% sales) 45.9 50.4 48.9 47.9
Receivables (% of Sales) 38.1 41.0 41.0 41.0 Gross debt/equity (x) 0 0 0 0
Net debt/equity (x) (0.4) (0.4) (0.5) (0.6)
Interest coverage (x) 14.1 15.1 15.3 15.7

Valuation Metrics Valuation Drivers

Year to March FY22A FY23E FY24E FY25E Year to March FY22A FY23E FY24E FY25E
Diluted P/E (x) 103.3 78.9 62.9 51.2 EPS growth (%) 142.2 30.8 25.6 22.8
Price/BV (x) 30.0 23.7 18.8 14.9 RoE (%) 29.0 33.6 33.3 32.5
EV/EBITDA (x) 30.4 22.5 17.7 14.6 EBITDA growth (%) 104.0 34.3 24.0 18.4
Dividend yield (%) 0.3 0.4 0.5 0.6 Payout ratio (%) 30.0 30.0 30.0 30.0
Source: Company and Nuvama estimates

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 VEDANT FASHIONS

Q2FY23 conference call: Key highlights

Q2FY23

 Sale of customers/Revenues was up 73%/89% vs. Q2FY20

 Gross margin improvement was driven by efficiencies

 International business is 128% higher vs. Q2FY20

 Vs. pre covid, growth was balanced between pricing/ASP and volume.

Stores

 Ethnic requires larger space due to requirement of hanging. Kurtas because they
can be stacked, require much lesser shelf space

 Company opened 17 SIS and 7 EBO’s in Q2FY23

 Pricing for international stores is higher

 All Tier of cities have seen similar growth vs Pre Covid. Metro cities may be
slightly higher. During covid, non-metro cities were seeing a better performance.

Campaigns

 Company also ran a rakhee campaign. Response was positive

 Taiyyar Hoke Aaye is a long term call to change the dressing preferences

Mohey

 Mohey is beating SSSG performance on a company level

Other brands

 Twamev- 2 stores have been signed, French design agency to design the store.
Launch will likely happen in Q4FY23 or Q1FY24. On an overall gross margin level,
Twamev will be slightly lower.

 Mebaaz has been doing very well and has a strong connect with AP and
Telangana. Strategy is to remain in AP and Telangana. It has seen strong SSSG
growth for the brand.

Outlook

 Company expects retail space to grow at a 15-16% CAGR over the next 2-3 years

 Scaling up of the business could see some increment in employee costs in the
future

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 VEDANT FASHIONS

Key store data

Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23
EBO Area (mn sq.ft) 1.13 1.15 1.21 1.27 1.28 1.34
Revenue (INR/Sq.ft/Annum)

India 525 534 566 583 590 612

International 12 12 12 12 13 14
Total EBOs 537 546 578 595 603 626

Cities & Towns - India NA 212 222 223 228 235

Secondary Sales (INR mn) 2,280 2,450 6,026 3,981 4,996 2,937
Conversion (%) 70 82 64 74 65 84

SSSG (%) - vs FY20 NA NA 31 33.4 25 35.1

Source: Nuvama Research, Company

Valuation
VFL’s USP is its category leadership along with a high RoCE. Its return ratios and
balance sheet are a rarity in the apparel retail segment.

The companies that we believe are similar in attributes to VFL are: i) Page Industries
– similarly, category leadership but with a higher RoCE; ii) Titan – another proxy for
wedding spends, and is a category leader with a lower market share but higher
addressable opportunity.

Peer comparison
Page Industries Titan Vedant Fashion
Core category Men's Innerwear Jewellery Men's IWCW
Category Total Size (INR bn) 165 4,515 133
Category Organized/Branded Size (INR bn) 33 1,445 30

Market share of Total size (%) 8 5 8

Market share of Organized/Branded (%) 41 15 35

FY15-20 Revenue CAGR (%) 14 12 16

FY15-20 EBITDA CAGR (%) 11 17 20
RoCE (%) 58 43 34

Optionality/Next leg drivers Athleisure Caratlane Mohey

Current - 1 Year Forward PE (FY24) 60 60 63

5 Year Average- 1 Year Forward PE 61 60 NA
Source: Company, Bloomberg, Edelweiss Research

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 VEDANT FASHIONS

Valuation of VFL
Particulars
FY24E EPS (INR) 21
Target PE (x) 65
Value (INR/Share) - March 2023 1,385
CMP (INR) 1,340
Upside potential (%) 3
Source: Edelweiss Research

Quarterly summary (INR mn)

Year to March Q2FY23 Q2FY22 % YoY Q1FY23 % QoQ FY22 FY23E FY24E
Revenue 2,469 1,999 23.5 3,250 (24.0) 10,408 13,709 16,924
Raw material costs 572 502 13.9 810 (29.4) 2,668 3,427 4,316
Gross profit 1,897 1,497 26.8 2,440 (22.2) 7,740 10,282 12,608
Employee costs 135 124 9.3 130 4.2 575 672 812
Other expenses 608 462 31.7 679 (10.5) 2,206 2,952 3,538
Total operating expenses 743 585 27.0 809 (8.1) 2,781 3,624 4,350
EBITDA 1,154 912 26.6 1,631 (29.2) 4,959 6,658 8,258
Depreciation 249 222 12.0 264 (5.7) 944 1,106 1,329
EBIT 905 689 31.3 1,367 (33.7) 4,015 5,553 6,929
Less: Interest Expense 77 65 18.8 78 (1.4) 284 367 453
Add: Other income 97 89 8.8 71 36.6 499 307 420
Add: Prior period items 0 0 0
Profit Before Tax 925 714 29.7 1,359 (31.9) 4,230 5,493 6,897
Less: Provision for Tax 235 181 29.6 351 (33.0) 1,081 1,373 1,724
Less: Minority Interest 0 0 0.0 0 0 0 0
Add: Exceptional items (net of tax) 0 0 0 0 0 0
Reported Profit 690 532 29.7 1,009 (31.6) 3,149 4,120 5,172
Adjusted Profit 690 532 29.7 1,009 (31.6) 3,149 4,120 5,172
NOSH 243 242 243 243 243 243
Adjusted EPS 2.8 2.2 29.6 4.2 (31.6) 13 17 21

As % of revenues
COGS 23.2 25.1 24.9 25.6 25.0 25.5
Gross profit 76.8 74.9 75.1 74.4 75.0 74.5
Employee costs 5.5 6.2 4.0 5.5 4.9 4.8
Other expenses 24.6 23.1 20.9 21.2 21.5 20.9
Total operating expenses 30.1 29.3 24.9 26.7 26.4 25.7
EBITDA 46.7 45.6 50.2 47.6 48.6 48.8
Net profit 28.0 26.6 31.0 30.3 30.1 30.6
Source: Nuvama Research, Company

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 VEDANT FASHIONS

Company Description
VFL is the largest company in India in the men’s Indian wedding and celebration wear
segment in terms of revenue, OPBDIT and profit after tax for FY20 (Source: CRISIL
Report). According to CRISIL, the ‘Manyavar’ brand is a category leader in the
branded Indian wedding and celebration wear market with a pan-India presence, as
of FY20. VFL has established a multi-channel network and introduced brands by
identifying gaps in the underserved and high growth Indian wedding and celebration
wear category. It focuses on spreading India’s culture, traditions and heritage
through its aspirational yet value for money brands at a diverse range of price points.
Manyavar offers a one-stop destination with a wide-spectrum of product offerings
for every celebratory occasion and aims to deliver an aristocratic yet seamless
purchase experience to the customers through its aesthetic franchisee-owned
exclusive brand stores

Investment Theme
Largest company in India in the men’s IWCW market: VFL is the largest company in
India in the men’s IWCW segment and brand ‘Manyavar’ is a category leader in the
branded IWCW market with a pan-India presence. In addition, the company also
owns Twamev (premium men’s wear), Manthan (value focused men’s wear), Mohey
(Women’s wear brand) and Mebaz (South focused, acquired in FY18)

Unique approach has helped achieve undisputed leadership: Before Manyavar

scaled-up, the IWCW market was fragmented, given divergent regional preferences
and extensive inventory requirement, which translates into is low asset turn and
write-offs can be significant. As a result, players, other than VFL, have limited their
expansion efforts.

Growth potential significant; depth and width opportunities : Manyavar’s core

market – branded men’s IWCW – is expected to clock a strong 18-20% growth over
FY20-25E. VFL is targeting to expand the TAM via i) targeting guests at wedding
function, rather than focussing just on the groom and close family; and ii)
encouraging usage of ethnic attire during country-wide festivals.

Strong optionality at play via other brands, especially Mohey: In addition to

Manyavar, VFL over the last decade, has also incubated/acquired multiple brands to
diversify its revenue base. The women’s IWCW market remains a more attractive
proposition than men’s wear given the current size and branded penetration. VFL
aims to establish a leading position in the women’s wedding market.

Key Risks
Increasing competition in the IWCW market

Significant contribution from franchisee-owned EBOs

Relies on outsourcing; concentration risk

Misallocation of capital

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 VEDANT FASHIONS

Additional Data
Management Holdings – Top 10*
Chairman & MD Ravi Modi % Holding % Holding

CFO Rahul Murarka SBI Funds 3.76 ICICI AMC 0.28

Kotak AMC 0.93 DSP AMC 0.27
CMO Vedant Modi
MOSL AMC 0.92 Kotal Life Ins 0.26
Director Shilpi Modi Invesco AMC 0.48 ICICI Pru 0.20
Auditor S.R. Batliboi & Co Axis AMC 0.34 ABSL AMC 0.19
*Latest public data

Recent Company Research Recent Sector Research

Date Title Price Reco Date Name of Co./Sector Title
In vogue but no discount; Result Strong India recovery; Indonesia
09-Aug-22 1,297 Buy 12-Nov-22 RBA
Update lags; Result Update
Dressed for the occasion; Initiating Stellar growth at the cost of
10-Jun-22 1,030 Buy 10-Nov-22 Trent
Coverage margins; Result Update
Steady taste; slight RM headwinds;
08-Nov-22 Jubilant Foodworks
Result Update

Rating Interpretation Daily Volume

30
1475

1340 24
TP
1,190
(INR)

1205 18
(Mn)

1070
12

935
6
800
Feb-22 Aug-22
0
MANYAVAR IN EQUITY Buy Hold Reduce Feb-22 Aug-22

Source: Bloomberg, Nuvama research Source: Bloomberg

Rating Distribution: Nuvama Research Coverage Rating Rationale

Buy Hold Reduce Total Rating Expected absolute returns over 12 months

Rating Distribution* 179 62 19 260 Buy: >15%

>50bn >10bn and <50bn <10bn Total Hold: >15% and <-5%

Market Cap (INR) 228 31 1 260 Reduce: <-5%

* stocks under review

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 VEDANT FASHIONS

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Digitally signed by ABNEESH KUMAR ROY

DN: c=IN, o=PERSONAL,

Abneesh Roy ABNEESH

pseudonym=7cd317d5e10821d6aa9bacaae6767
14e,
2.5.4.20=94D8B562953A21CEAD76812230FD36A
30252F71AF914A3B962677D8BC9798437,
Head of Research Committee
KUMAR ROY
postalCode=400098, st=MAHARASHTRA,
serialNumber=7370c9de10fb28bbf7cbc6f71afe3c
fe848fa7245a8d681629dc3093fb2a8ea9,
Abneesh.Roy@nuvama.com cn=ABNEESH KUMAR ROY
Date: 2022.11.14 21:14:04 +05'30'

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