Go Fashion shares rally 5% as Motilal Oswal initiates coverage with buy, sees 31% upside

Economic Times

2 days ago

Shares of Go Fashion climbed as much as 5.1% on Tuesday to Rs 904.50 on the BSE after brokerage Motilal Oswal initiated coverage on the stock with a 'buy' rating and a target price of Rs 1,127, citing the company's category leadership in women's bottom-wear and a scalable, brand-led retail model.
ADVERTISEMENT The target price of Rs 1,127 indicates an upside potential of 31% from current levels.
Motilal Oswal described Go Fashion, which operates under the 'Go Colors' brand, as 'a pioneer and category leader in the women's bottom wear market, holding an 8% share of the organized market.' The brokerage added that the company has 'successfully established a direct-to-consumer (D2C) brand, offering a wide range of products through 776 exclusive brand outlets (EBOs) across 180 cities.'
The brokerage highlighted that 'bottom wear addresses functional, repeat-use needs and is less susceptible to fashion cycles compared to top wear,' enabling steady demand and operational stability. The segment, valued at Rs 135 billion in 2020, is the fastest-growing sub-category in the apparel market, with about 12% CAGR and relatively low organized retail penetration, estimated at about 38% by 2025.According to the brokerage, 'GOCOLORS's success stems from its exclusive focus on women's bottom-wear, a structurally underserved category, which enabled the company to build deep domain expertise, high product variety, and strong brand recall, and its early transition to the EBO model, which provided complete control over pricing, merchandising, and consumer experience.'
ADVERTISEMENT Between FY19 and FY25, the company delivered a 20% CAGR in revenue and profit, with EBOs contributing 73% of sales. Gross margins improved 350 basis points to 63.3% over the period, though EBITDA margins stayed flat at about 17% due to negative operating leverage in FY25.Still, Go Fashion generated Rs 3.3 billion in cash from operations and Rs 1.6 billion in free cash flow, maintaining an 18% return on capital.
ADVERTISEMENT Looking ahead, Motilal Oswal sees a 16% revenue CAGR through FY28, driven by 18% growth in EBO and online channels. It expects operating leverage to offset some pressure from raw material costs, expanding EBITDA margins to 18.2%.'We value the stock at 45x FY27E EPS to arrive at our TP of INR 1,127,' the note said, adding that the stock currently trades at 34x FY27E EPS after a recent correction.
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Go Fashion shares have declined 8% over the past year and are down 21% in the last six months. However, the stock has recovered 25% over the past three months and gained 4.3% in the last week.Technically, the stock is trading above six of its eight key simple moving averages, including the 5-day, 10-day, 20-day, 30-day, 50-day, and 100-day SMAs. It remains below the 150-day and 200-day SMAs. The Relative Strength Index (RSI) stands at 56.6, indicating the stock is neither overbought nor oversold. Meanwhile, the Moving Average Convergence Divergence (MACD) is at 18.7, above its centerline but below the signal line.
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