Vedant Fashions: Connecting To The Roots With Style!
Vedant Fashions: Connecting To The Roots With Style!
Vedant Fashions: Connecting To The Roots With Style!
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Vedant Fashions
02 07
Page # 10
A strong player decoding Page # 41
fashion with ethnicity ESG, CSR & Diversity
03 08
Page # 21 Page # 42
Opportunities galore! –
Tradition for today &
Vedant Fashions SWOT analysis
09
with style!
Vedant Fashions (VFL), with a
Pan India presence covering 250
04
Page # 43
cities and 640 stores, has Bulls and Bear
established itself as a strong
Page # 29 brand within the under-
10
Adding new growth engines – penetrated ethnic-wear
Mohey, Twamev and segment (~20% of the total
Manthan
market was branded as of FY20).
Limited competition, growing Page # 44
cultural pull and strong brand Company overview
recall present a huge runway of
05 growth for VFL.
Page # 33
Strong brand + disciplined
11
Page # 45
approach = healthy earnings
Management overview
06 12
Page # 46-47
Page # 38
Financials and valuations
Warrants rich valuation!
Initiate coverage with a BUY
Initiating Coverage | Sector: Retail
Vedant Fashions
Vedant Fashions
BSE SENSEX S&P CNX
57,960 17,081
CMP: INR1,106 TP: INR1,400 (+27%) Buy
Connecting to the roots with style!
A category creator celebrating diversity with ethnic wear
Vedant Fashions (VFL), with a pan-India presence covering 250 cities and 640
Stock Info stores, has established itself as a strong brand within the highly under-
Bloomberg MANYAVAR IN penetrated and unorganized ethnic wear segment (~20% branded). Limited
Equity Shares (m) 243 competition, growing cultural pull and strong brand recall present a huge
M.Cap.(INRb)/(USDb) 268.4 / 3.3
runway of growth for VFL.
52-Week Range (INR) 1501 / 899
1, 6, 12 Rel. Per (%) -6/-23/19 The company’s: a) strong design capabilities with data-driven decision
12M Avg Val (INR M) 165 making (leading to no discounted sales), b) tech-driven supply chain and
Free float (%) 15.1 auto replenishment model c) exclusive vendor ecosystem, and d) franchise-
based EBO expansion have helped scale up its business and achieve
Financial Snapshot (INR b)
superior margins.
Y/E March FY23E FY24E FY25E
Sales 13.4 16.2 19.6
Scaling-up emerging brands (especially Mohey; ~10% of revenue), and
EBITDA 6.6 8.0 9.7 catering to the sizeable women’s celebration wear market (~5x the size of
Adj. PAT 4.2 5.1 6.2 men’s segment at INR735b as of FY20), can be the key growth levers with
EBITDA Margin (%) 49.2 49.2 49.4 improving operating metrics and plans to add independent stores. Further,
Adj. EPS (INR) 17.2 20.9 25.7 expanding a) Twamev through up-selling and b) Manthan to capture the
EPS Gr. (%) 32.4 21.8 23.1 value fashion segment could underpin revenue growth moving ahead.
BV/Sh. (INR) 55.0 67.2 82.2
The company’s minimal capex requirements, attributed to the franchise-
Ratios
Net D:E -0.3 -0.4 -0.5
funded growth and its strong profitability, are likely to translate into a
RoE (%) 33.9 33.2 33.4 healthy cash conversion cycle and an ROIC of 58% (pre-Ind AS 116; FY23E).
RoCE (%) 28.7 28.3 28.5 We expect the company to report a revenue/PAT CAGR of 21%/22% over
Payout (%) 40 40 40 FY23-25, driven by 15% footprint additions. We ascribe a forward P/E of
Valuations 55x, at ~10% premium to our average retail coverage multiple, to arrive at
P/E (x) 64.2 52.7 42.8 our TP of INR1,400. We initiate coverage on the stock with a BUY rating.
EV/EBITDA (x) 40.6 33.4 27.2
Key downside risks: a) prolonged recovery in discretionary spending, b) a
EV/Sales (X) 20.0 16.4 13.5
Div. Yield (%) 0.6 0.8 0.9 delay in scaling up of emerging brands (Mohey, Twamev and Mathan), c)
FCF Yield (%) 1.5 2.0 2.5 heightened competition from the entry of National retailers in ethnic wear
segment and d) strong dependence on external job workers for
Shareholding pattern (%)
As On Dec-22 Sep-22 procurement and production of end-products.
Promoter 84.9 84.9
DII 9.7 9.7 Tradition reinvented, fashion renewed quite admirably
FII 3.4 3.4
VFL, through the brand Manyavar, has created a strong brand in the deeply
Others 2.0 2.0
underserved men’s ethnic wear market. Catering across price points, the brand
Stock Performance (1-year) offerings include a complete ready-made wedding and occasion wear, solving
Vedant Fashions age- old hassles of long lead time and unimpressed wedding attire trousseau.
Nifty - Rebased
1,550 With a revenue scale of INR13.4b (FY23E) across 640 stores, it has built a pan-
1,350
India presence with limited competition. VFL’s strong brand recall, thanks to it
curated marketing strategy with celebrity brand ambassadors and emotional
1,150
theme based campaigns has created aspirational brand yet value for money with
950
industry leading margins and return profile. We expect it to garner a revenue/PAT
750 CAGR of 21%/22% over FY23-25, led by continued footprint additions, healthy
May-22
Mar-22
Mar-23
Nov-22
Jan-23
Jul-22
Sep-22
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Warrants rich valuation! Initiate coverage with a BUY rating on the stock
The stock is trading at P/E and EV/EBITDA of 42.8x and 27.2x on FY25E, respectively.
The Indian ethnic wear business is a difficult business to replicate, given its high
customer needs and complex inventory management. This gives VFL an inherent
competitive advantage. It has: a) a large-scale multi-year growth opportunity, b) no
intense competition, and c) strong margin and ROCE profile. Further, VFL’s
franchisee model ensures limited store-related investments and working capital
needs. Notably, the management’s disciplined growth approach, as evident from
Mohey and Twamev’s gradual scale-up, has ensured it does not face the risk of
bloated working capital and aggressive write-downs, which can hamper its
profitability and retract scale. We expect the company to report a revenue/PAT
CAGR of 21%/22% over FY23-25, driven by 15% footprint additions. We ascribe a
forward P/E of 55x, at ~10% premium to our average retail coverage multiple, to
arrive at our TP of INR1,400. We initiate coverage on the stock with a BUY rating.
March 2023 5
Vedant Fashions
Story in charts
Industry landscape and overview
Total Market Women’s Men’s Kids’
(INR b) FY15 F20 FY25 FY15 FY20 FY25 FY15 FY20 FY25 FY15 FY20 FY25
Total Market 4,000 5,647 8,200 1,720 2,372 3,608 1,560 2,259 3,198 720 1,016 1,394
% of total Market 43 42 44 39 40 39 18 18 18
Total Ethnic wear 1,292 1,800 2,400 1,034 1,458 1,920 138 172 240 120 170 240
as a % of total apparel wear 32 32 29 60 61 53 9 8 8 17 17 17
% of ethnic 80 81 80 11 10 10 9 9 10
Indian wedding/celebration wear 753 1,020 1,375 550 735 1,004 100 133 179 103 153 193
as a % of total Ethnic wear 58 57 57 53 50 52 72 77 74 86 90 80
as a % of total Wedding 73 72 73 13 13 13 14 15 15
Branded 75 204 440 33 147 301 10 33 80 32 24 58
% of wedding and celebration 10 20 32 6 20 30 10 25 45 31 16 30
Unbranded 678 816 935 517 588 703 90 99 98 71 129 134
% of wedding and celebration 90 80 68 94 80 70 90 75 55 69 84 70
Source: MOFSL, Company
5.5-6% CAGR
Ethinc Wear
Ethinc
FY20: INR1,800b
Wear
FY25: INR2,400b Celebration Wear
18-20%CAGR
Branded
FY20: INR204b
FY25E: ~INR440b
5.5-6% CAGR
Ethinc Wear
FY20: ~INR180b Ethinc
Celebration Wear
Wear
5-6% CAGR Branded
Celebration wear
FY20: INR133b
FY25E: ~INR180b
18-22% CAGR
Branded
FY20: INR33b
FY25E: ~INR80b
March 2023 6
Vedant Fashions
5.5-6% CAGR
Ethinc Wear
FY20: ~INR1,460b Ethinc
Wear
Celebration Wear
5-6% CAGR
Celebration wear Branded
FY20: INR735b
FY25E: ~INR1,000b
17-20% CAGR
Branded
FY20: INR147b
FY25E: ~INR300b
A B C D E
Extended Acceptability
Higher market size of wearing Increased
Huge domestic
spending on beyond bride/ ethnic wear penetration of
market of 9.5-
apparel per groom to during various branded
10.0m
consumer led immediate festivities as players in tier-
weddings per
by improved family, close well as the II and tier-III
year
income levels friends and emergence of markets
relatives new brands
Growth rate - 1%
Weddings
9.5-10.0m
March 2023 7
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Store economics considering no franchise Store economics considering for franchise Store economics for company
INR m Total INR m Total INR m Total
FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales
Average store size 2,230 Average store size 2,230 Average store size 2,230
Capex 5 2,250 Capex 5 2,250 Capex
Security Deposit 1 500 Deposit for property 1 500 Inventory 5 2,385
Inventory 10 4,498 Deposit against Inventory 2 921 Total 5 2,385
Total 16 7,248 Total 8 3,671 Payback (in years)
CASE I: FOFO MODEL
Payback (in years) 1.1 1.1 Payback (in years) 3.7 3.7 Sales to customer 27 12,280
Revenue 27 12,280 Asset turn 3.34 Franchise Margin 8 3,623
Gross Profit 21 9,405 Revenue 27 12,280 Net Revenue 19 8,657
Gross margin (%) 77 77 Gross Profit 8 3,623 Raw material cost 6 2,875
Rent 4 1,656 13% Gross margin (%) 30 30 Total 14 6,498
Employee cost 1 553 5% Rent 4 1,656 13 Gross Profit 13 5,782
Other expenses 1 432 4% Employee cost 1 553 5 Gross margin (on customer revenue) 47%
Store Level EBITDA 15 6,765 Other expenses 1 432 4 Gross margin (net of franchise share) 67% 67%
Margin (%) 55 55 Store Level EBITDA 2 982
Margin (%) 8 8
Depreciation 281
EBIT 701
Margins (%) 6
ROIC (%) 19
Store economics considering no franchise Store economics considering for franchise Store economics for company
INR m Total INR m Total INR m Total
FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales
Average store size 2,230 Average store size 2,230 Average store size 2,230
Capex 5 2,250 Capex 5 2,250 Capex
Security Deposit 1 500 Deposit for property 1 500 Inventory 5 2,385
Inventory 10 4,498 Deposit against Inventory 2 921 Total 5 2,385
Total 16 7,248 Total 8 3,671 Payback (in years)
CASE II: COFO MODEL
Payback (in years) 1.1 1.1 Payback (in years) 3.7 3.7 Sales to customer 27 12,280
Revenue 27 12,280 Revenue 27 12,280 Franchise Margin 5 2,272
Gross Profit 21 9,405 Gross Profit 5 2,272 Net Revenue 22 10,008
Gross margin (%) 77 77 Gross margin (%) 19% 19% Raw material cost 6 2,875
Rent 4 1,656 13% Rent - - 0% Total 11 5,147
Employee cost 1 553 5% Employee cost 1 553 5% Gross Profit 16 7,133
Other expenses 1 432 4% Other expenses 2 737 10% Gross margin (on customer revenue) 58% 58%
Store Level EBITDA 15 6,765 Store Level EBITDA 2 982 Gross margin (net of franchise share) 71% 71%
Margin (%) 55 55 Margin 8% 8%
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Pan-India operations
Manyavar has widespread pan-India multi-channel presence with ~90% sales of
customers coming through the EBO network with asset-light franchisee model and
high cash conversion ratio. This allows it to scale up without own investments. It
currently operates 640 stores with 1.39m sq. ft. across 251 cities, out of which, 626
stores are in India, while the rest are overseas (including the US, Canada, and the
UAE). In India, it is present across 242 cities. All the formats are operated through
the franchisee-led EBO model, along with online and other channels. However, the
value brand Manthan, which potentially operates at a lower margin, operates
through the online and MBOs networks.
March 2023 12
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1.4 1.5
1.3
1.2
1.1
0.9
0.8
530
410 470 527 583 640 663
2,266 2,230
2,200 2,200 2,200
March 2023 13
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4,923
1.10
0.81 0.94 1.19 1.30 1.46 1.68 1.93
March 2023 14
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Store economics considering no franchise Store economics considering for franchise Store economics for company
INR m Total INR m Total INR m Total
FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales
Average store size 2,230 Average store size 2,230 Average store size 2,230
Capex 5 2,250 Capex 5 2,250 Capex
Security Deposit 1 500 Deposit for property 1 500 Inventory 5 2,385
Inventory 10 4,498 Deposit against Inventory 2 921 Total 5 2,385
Total 16 7,248 Total 8 3,671 Payback (in years)
CASE I: FOFO MODEL
Payback (in years) 1.1 1.1 Payback (in years) 3.7 3.7 Sales to customer 27 12,280
Revenue 27 12,280 Asset turn 3.34 Franchise Margin 8 3,623
Gross Profit 21 9,405 Revenue 27 12,280 Net Revenue 19 8,657
Gross margin (%) 77 77 Gross Profit 8 3,623 Raw material cost 6 2,875
Rent 4 1,656 13% Gross margin (%) 30 30 Total 14 6,498
Employee cost 1 553 5% Rent 4 1,656 13 Gross Profit 13 5,782
Other expenses 1 432 4% Employee cost 1 553 5 Gross margin (on customer revenue) 47%
Store Level EBITDA 15 6,765 Other expenses 1 432 4 Gross margin (net of franchise share) 67% 67%
Margin (%) 55 55 Store Level EBITDA 2 982
Margin (%) 8 8
Depreciation 281
EBIT 701
Margins (%) 6
ROIC (%) 19
Store economics considering no franchise Store economics considering for franchise Store economics for company
INR m Total INR m Total INR m Total
FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales FY22 Per Store Per sqft % Sales
Average store size 2,230 Average store size 2,230 Average store size 2,230
Capex 5 2,250 Capex 5 2,250 Capex
Security Deposit 1 500 Deposit for property 1 500 Inventory 5 2,385
Inventory 10 4,498 Deposit against Inventory 2 921 Total 5 2,385
Total 16 7,248 Total 8 3,671 Payback (in years)
CASE II: COFO MODEL
Payback (in years) 1.1 1.1 Payback (in years) 3.7 3.7 Sales to customer 27 12,280
Revenue 27 12,280 Revenue 27 12,280 Franchise Margin 5 2,272
Gross Profit 21 9,405 Gross Profit 5 2,272 Net Revenue 22 10,008
Gross margin (%) 77 77 Gross margin (%) 19% 19% Raw material cost 6 2,875
Rent 4 1,656 13% Rent - - 0% Total 11 5,147
Employee cost 1 553 5% Employee cost 1 553 5% Gross Profit 16 7,133
Other expenses 1 432 4% Other expenses 2 737 10% Gross margin (on customer revenue) 58% 58%
Store Level EBITDA 15 6,765 Store Level EBITDA 2 982 Gross margin (net of franchise share) 71% 71%
Margin (%) 55 55 Margin 8% 8%
March 2023 15
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8.8 8.3
7.6
6.8 6.8
4.8 4.6
Business analytical tools and modules for intra-store communication (in-house POS
order management ‘Sansar’ module and ‘Wooqer’ application) further aid in
optimizing the inventory management between the stores.
March 2023 17
Vedant Fashions
Real time tracking of inventory Strong supply chain Over 480 registered
at EBO level Analyzing trend & to optimize vendors across 45 cities
consumer preference to reduce
dead stock inventory
management
Inventory
Manufacturing
Management
Manufacturing through
Stores inventory in Kolkata a) in-house & b) third-party
warehouse (0.26m Sq ft) and uses jobbers. Also procures some
automated replenishment system products directly from third party
Vendor ecosystem
The fully automated vendor ecosystem is seamlessly efficient with a quick
turnaround. The highly fragmented market consists of 400 vendors and a large
number of artisans/job workers. The vendors work with some level of exclusivity for
VFL to ensure that the designs and product uniqueness is maintained. With an
efficient tech platform, the systems and processes can be leveraged to create scale.
Unlike most players, who source products seasonally according to market demand,
VFL procures a steady rate of inventory from these vendors/jobbers every month,
even in low-/high-demand periods. Therefore, the vendors/jobbers continue to
enjoy consistent business. Further, VFL provides top dollar business to its vendors,
which is significantly higher than any other player, and also makes on-time weekly
payments. The company has cultivated strong, positive business relationships with
vendors, and enjoy long-term relational benefits with these vendors, who have
grown and benefited from VFL’s journey over the last 15-20 years. Of the total
vendors associated with the company, ~50 would be the larger ones with INR50m
business and the top 10-15 would be doing INR100-150m business. VFL has some
level of exclusive contracts with them and makes no compromise on principles.
Low online penetration, but customers can walk through endless isles
VFL’s online contribution stands at ~3% of the total revenue as on FY22. Being a high
ticket size product, customers are very particular of the quality, fit, and fabric,
therefore, they prefer to buy the product through the physical stores. However, VFL
has two key aspects of Online business that improves customer experience – omni-
channel and endless isle:
March 2023 18
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b) Endless Isle: It has also adopted modules for communication at EBOs, whereby,
the EBOs can access the products inventory across the Manyavar stores and place
orders from another store (in case of a stock-out), and as a result, can service the
customers’ orders at a short notice at the EBO of their choice.
1.0 408
0.7
83 127 187
March 2023 19
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Launch of
compliance tool;
Launch of
upgraded
website; Fully
integrated store Launch of
catalogue; Jobber
Mobile App portal
Launch of
Adoption of Wooqer;
Manyavar vendor
Communication Module
portal
with Stores
Introduction of “Sansar
Module” – POS order Successful adoption of
management business analytical tool
March 2023 20
Vedant Fashions
1,325-1,375
1,080 1,020 850-900
753 564
March 2023 21
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5.5-6.0% CAGR
Ethinc Wear
FY20: INR1,800b Ethinc
FY25E: ~INR2,400b Celebration Wear Wear
18-20% CAGR
Branded
FY20: ~INR204b
FY25E: ~INR440b
5.5-6.0% CAGR
Ethinc Wear Ethinc
FY20: INR180b Celebration Wear Wear
18-22% CAGR
Branded
FY20: ~INR33b
FY25E: ~INR91b
March 2023 22
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5.5-6.0% CAGR
Ethinc Wear
Ethinc
FY20: ~INR1,460b
Celebration Wear Wear
Celebration Wear
FY20: INR735b
FY25E: ~INR1,000b
17-20% CAGR
Branded
FY20: ~INR147b
FY25E: ~INR300b
Growth rate – 1%
Weddings
9.5-10.0m
March 2023 23
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Venue, 18%
Misc., 22%
Invitation, 4%
Catering, 27%
Exhibit 13: Levers of growth within the wedding and non-wedding space
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Exhibit 14: Indian wedding/celebration wear segment to report 15-17% CAGR (INR b)
1,325-1,375
1,080 1,020
850-900
753
564
March 2023 25
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Exhibit 16: Competitive mapping of key players in the Indian wedding and celebration wear market
Primary
Company Name Category Celebration wear Brand
Focus on celebration wear
Vedant Fashions Ltd Men, Women & Kids Manyavar, Mohey, Manthan, Twamev Mebaz 100%
TCNS Clothing Women W, Aurelia, Wishful 25%
Swayamvar Men Swayamvar 100%
Soch Apparels Women Soch 25%
Ritika Pvt Ltd Women Ritu Kumar 75%
Neeru Ensembles Pvt Ltd Men, Women & Kids Neeru's 95%
Nalli Silk Sarees Pvt Ltd Women and Men Nalli 75%
Jahapanah Clothing Pvt Ltd Men Jahapanah 100%
Jadeblue Lifestyle India Ltd Men Jade Blue 10%
Biba Apparels Pvt Ltd Women Biba, Rangriti 25%
Source: MOFSL, Company
>7
3 to 7
1 to 3
<1
Source: Company
March 2023 26
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MEN’s WOMEN’s
LUXURY
PREMIUM
MID AND
MID MARKET
VALUE AND
Source: Company
The segment is witnessing Apart from VFL’s Manyavar brand, Raymond and Aditya Birla Fashion (ABFRL) have
entry of various national also entered the segment with their own brands:
players (e.g., Raymond and Ethnix by Raymond: The company ventured into the ethnic wear space with the
ABFRL) introduction of ‘Ethnix’, offering menswear for special occasions, weddings and
celebrations. The brand, which is currently at a nascent stage with 27 stores as
of Mar’22, is looking to scale up aggressively.
Ethnic wear portfolio by ABFRL: ABFRL along with Tarun Tahlian (34% stake
acquired by ABFRL), has launched Tasva in direct competition with Manyavar. It
has already opened 32 stores. It also acquired Nikhil and Shantanu and Jaypore
in Jul’19 with 15 stores in total and INR218m/INR267m in revenue, respectively.
In women’s wear too, ABFRL has acquired a 51% stake in Sabyasachi in the
luxury category in Jan’21 for INR3.9b and launched Marigold in the premium
segment.
We think the market is big enough to accommodate more players, even though it is
a difficult market to penetrate. Further, the moat created by Manyavar is huge in
terms of scale, vendor ecosystem and market standing in many local markets,
(INR150-200m revenue in many large localities), offering a much wider SKU/variety
to customers. The system-driven approach helps in right demand forecasting by
eliminating human interface, thus leading to low dead stock and healthy
profitability. In many localities, it has increased the store size, yet productivity and
the revenue base of existing/older stores continue to grow. Localities that had
hardly any stores five years back are now big revenue generating centers.
March 2023 27
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Exhibit 17: Revenue scale of competition within the space Exhibit 18: Operating profits –VFL leads the pack
INR m FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
Revenues EBITDA Margins (%)
Casual Wear Casual Wear
Ethnicity 1,461 1,191 1,114 378 381 Ethnicity 4.3 6.2 4.7 -18.0 -43.4
Biba 7,168 7,294 7,572 5,258 6,292 Biba 13.7 17.8 18.0 11.9 16.9
Soch 3,650 3,272 2,810 1,337 2,388 Soch 9.5 6.1 -7.4 -19.7 -0.7
TCNS 8,424 11,480 10,788 6,355 8,961 TCNS 18.9 15.4 18.0 0.4 10.0
Celebration Wear Celebration Wear
Ritu Kumar 2,014 2,410 2,853 1,753 2,500 Ritu Kumar 6.1 3.0 3.9 -9.5 4.7
House of Anita Dongre 4,819 5,092 5,078 2,570 NA House of Anita Dongre 8.9 5.6 20.0 -7.1 NA
Vedant Fashion 7,593 8,007 9,155 5,648 10,408 Vedant Fashion 30.5 41.9 43.0 43.0 47.6
Jahanpanah Clothing 164 324 355 NA NA Jahanpanah Clothing 1.5 1.8 5.6 NA NA
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 19: Robust gross margins across segment Exhibit 20: Profitability within the space remains a mixed bag
INR m FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
Gross Margins (%) PAT Margins (%)
Casual Wear Casual Wear
Ethnicity 22 33 35 31 32
Ethnicity 1.3 2.3 0.6 (22.3) (36.3)
Biba 88 66 67 58 63
Biba 6.7 2.8 1.6 (2.2) 1.9
Soch 49 50 46 43 47
Soch 3.7 0.5 (9.9) (23.1) (4.8)
TCNS 60 66 70 57 65
TCNS 12.1 11.4 14.4 (8.9) (0.6)
Celebration Wear Celebration Wear
Ritu Kumar 90 84 85 78 58 Ritu Kumar 2.1 (1.0) (0.6) (17.9) (13.9)
House of Anita Dongre 79 77 68 61 NA House of Anita Dongre 2.6 0.7 (2.2) (35.1) NA
Vedant Fashion 68 72 73 74 74 Vedant Fashion 19.3 22.0 25.8 23.5 30.3
Source: MOFSL, Company Jahanpanah Clothing 0.6 0.8 0.6 NA NA
Source: MOFSL, Company
Exhibit 21: ROE comparatives (%) Exhibit 22: ROCE comparatives (%)
FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
ROE (%) ROCE (%)
Casual Wear Casual Wear
Ethnicity 14.8 13.6 2.5 (41.4) (37.9) Ethnicity 7.8 9.2 4.1 (16.2) (20.9)
Biba 17.1 6.6 4.0 (3.9) 3.8 Biba 15.1 11.1 6.9 1.7 6.1
Soch 36.2 3.9 (86.8) (831.2) 69.2 Soch 12.9 5.2 (13.3) (18.9) (3.8)
TCNS 29.6 25.6 24.3 (8.9) (0.9) TCNS 41.4 30.9 23.2 (4.1) 3.0
Celebration Wear Celebration Wear
Ritu Kumar 4.3 (2.4) (1.8) (48.6) (44.6) Ritu Kumar 4.0 (0.1) 3.0 (14.2) (9.0)
House of Anita Dongre 4.7 1.2 (4.3) (42.9) NA House of Anita Dongre 5.0 2.0 9.6 (12.8) NA
Vedant Fashion 28.5 22.3 24.3 12.3 29.0 Vedant Fashion 28.7 21.3 21.6 11.6 25.2
Jahanpanah Clothing 36.8 18.7 NA NA NA Jahanpanah Clothing 47.5 23.1 NA NA NA
Source: MOFSL, Company Source: MOFSL, Company
March 2023 28
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Branded Unbranded
27-30%
6% 15-20%
Organized women’s ethnic and celebration wear market has been dominated
by saree players, which have been achieving a scale over the period.
March 2023 29
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Exhibit 24: South-based players have seen strong scale-up Exhibit 25: Players operating at a healthy gross margins
INR m FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
Revenues Gross Margins (%)
Women Ethnic wear Women Ethnic wear
R.S. Brothers 10,852 12,879 13,599 7,961 15,520 R.S. Brothers 32.0 29.3 31.0 34.9 33.0
SSKL 6,918 10,439 11,756 6,772 11,293 SSKL 26.8 29.7 28.0 34.0 34.7
Pothy's 12,644 16,538 15,988 7,633 NA Pothy's 25.8 30.7 36.3 38.8 NA
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 26: Operating margins within the space Exhibit 27: PAT margins trajectory
FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22
EBITDA Margins (%) PAT Margins (%)
Women Ethnic wear Women Ethnic wear
R.S. Brothers 5.2 4.2 4.8 8.4 7.0 R.S. Brothers 2.0 1.6 2.2 3.0 3.1
SSKL 7.2 7.4 8.8 9.2 12.2 SSKL 2.2 2.9 3.6 0.8 5.1
Pothy's 4.1 9.6 17.0 20.5 NA Pothy's 1.5 4.5 9.1 7.7 NA
Source: MOFSL, Company Source: MOFSL, Company
7.1
6.8
6.6
1,000
748 899 625
March 2023 30
Vedant Fashions
Hence, VFL should be in a position to accelerate the pace of Mohey’s store addition
in the next few quarters. All four key factors will be closely tracked in EBOs and once
it sees the required results, then the pace of store addition will be accelerated. The
target is to achieve 10,000sqft/store in EBOs before accelerating the pace of growth.
VFL is targeting a nucleus of three product categories viz., lehenga, saree and
gown. The lehenga category is doing very good and is the key contributor/growth
driver. Saree is second and gowns are kept to add variety. It is improving the
merchandise to optimize key metrics. Surprisingly, Mohey needs a much lower
number of SKUs for sizes as lehenga/sarees need fewer sizes (only blouse are
customized).
MOHEY’S
GROWTH Establish new
STRATEGIES standalone stores
March 2023 31
Vedant Fashions
Independent ad campaigns
under Mohey
March 2023 32
Vedant Fashions
VFL enjoys industry leading The interesting case of superior gross margins
margins led by: Apparel companies in India across multiple categories garner 55-60% margin at the
A healthy 4-5x multiple peak for premium segments and 30-35% at the lower level for value segments. VFL
for cost-to-MRP ratio operates in the high ticket size products but caters to the mid-premium segment
No discount or dead
with very competitive pricing. This makes it interesting to ponder what allows it to
stock
Moderate 25% channel
consistently garner high gross margin. We see three key reasons for the same.
margin A healthy 4-5x multiple for cost to MRP
No discount or dead stock
Moderate 25% channel margin
2) Apparel retailer:
Cost-to-MRP multiple: Apparel retailers that sell products exclusively in own
stores offer products at a low cost-to-MRP multiple to create a pull for
customers. They sell good quality products at a slightly lower price point below
brands to attract customers to their EBOs.
Channel commission: They operate through own EBO channels and therefore
do not have to share commission/margin with any outside retailers/distributors.
This helps them earn better margin despite a low cost-to-MRP multiple.
March 2023 33
Vedant Fashions
Discounted sales: Retailers that are able to create a pull for customers through
products led by upbeat designs and quality have low discounted sales. On the
other hand, retailers that face the problem of low full-price sell-through offer a
higher share of products at discounts in the EOSS. This leads to a margin range
of 45-55%, where companies with low discounted sales are able to earn 55%
gross margins, while retailers with a high proportion of discounted sales
generate relatively lower gross margin of 45%.
3) Manyavar
Cost-to-MRP multiple: It operates at a healthy yet competitive 4-5x cost-to-MRP
multiple.
Channel Commission: It offers low 25% channel margin (blended for COFO and
FOFO model) against top brands offering 40-45% depending on their distributor-
retailer share.
Discounted Sales: Manyavar is highly disciplined in its price offering with zero
discounts throughout the year.
Thus these three factors help it garner healthy gross margin of ~70%.
Exhibit 32: Case study on gross margins for various players in the segment
a INR Brand Retailer Manyavar
b Multiple (x) 5 4 4
c Discount sales 25% 40% 0%
d Channel commission 45% 0% 25%
e Sales 1,000 1,000 1,000
f Channel discount (e*d) 450 - 250
g Revenue (e-f) 550 1,000 750
h Discount (g*c) 138 404 -
i Revenue (h-i) 413 596 750
j RM cost (e/b) 200 270 250
k Gross profit (i-j) 213 326 500
l Gross margins (k/i) 52% 55% 67%
Source: MOFSL, Company
March 2023 34
Vedant Fashions
(14.3)
(1.7)
(3.5)
(4.6)
(5.9)
(5.6)
(7.9)
(10.8)
(0.7)
(1.3)
(1.4)
(1.4)
(1.5)
(1.6)
(1.8)
(3.2)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Source: MOFSL, Company
(0.9)
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Source: MOFSL, Company
March 2023 35
Vedant Fashions
Exhibit 35: Net working capital days expected to see marginal increase
Inventory (Days) Debtor (Days) Creditor (Days) Net WC days
362
134
152
149
152
176
148
253
233
124
196
139
100
198
140
198
140
198
140
65
95
73
90
90
90
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Payable days and Inventory days calculated on Cost Source: MOFSL, Company
Healthy return profile: VFL garners ROCE of 28.7% and ROE of 33.9%, led by healthy
0.7x asset turns and rich 49.4% EBITDA margin (FY23E). On pre-IND-AS 116, it
garners 29.6% ROCE. But one of the key dampeners is its high liquid investment and
cash position of INR5.1b (1HFY23). Since the company does not need growth capital,
there is limited use of the capital. It has a dividend payout of 40-45% but the existing
high cash balance drags down ROCE. Adjusted for high cash, ROIC works out to be a
healthy 40.9% (FY23E; Post Ind-AS 116) despite having high working capital. This is
because there is limited investment requirement in the business beyond working
capital.
RoCE RoIC
50.2
44.6
40.9
35.6 33.3
29.2
38.2 24.4 25.7
Exhibit 37: ROE profile remains robust (Post Ind-AS 116) Exhibit 38: Du-Pont analysis
Du Pont analysis FY17 FY18 FY19 FY20 FY21 FY22
RoE
Net profit margin (%) 18.2 19.3 22.0 25.8 23.5 30.3
39.6
33.9 33.2 33.4 Assets turnover (x) 1.4 1.1 0.7 0.6 0.4 0.7
28.5 29.0 Financial leverage (x) 1.52 1.38 1.42 1.49 1.49 1.41
22.3 24.3
RoE (%) 39.6 28.5 22.3 24.3 12.3 29.0
March 2023 36
Vedant Fashions
Exhibit 39: ROCE decomposition analysis (Post Ind-AS 116) Exhibit 40: ROIC decomposition analysis (Post Ind-AS 116)
ROCE de-composition FY17 FY18 FY19 FY20 FY21 FY22 ROIC de-composition FY17 FY18 FY19 FY20 FY21 FY22
Net operating margin (%) 18.5 19.8 23.6 28.0 26.9 32.3 EBIT margin (%) 18.2 19.0 22.1 25.3 19.1 28.7
Assets turnover (x) 2.1 1.4 0.9 0.8 0.4 0.8 Assets turnover (x)* 2.0 1.5 1.1 1.0 0.6 1.2
RoCE (%) 38.2 28.7 21.3 21.6 11.6 25.2 RoIC (%) 35.6 29.2 24.4 25.7 11.8 33.3
Source: MOFSL, Company *excluding cash and investment Source: MOFSL, Company
March 2023 37
Vedant Fashions
Distinguished growth
VFL has a large scale, multiyear growth opportunity on the back of a growing market
size and a large unorganized market with little competition. It is difficult to replicate
a successful business in the Indian ethnic wear segment given high customer needs
and complex inventory management. This gives VFL inherent competitive
advantage. This also offers a huge runway for growth over the next 5-7 years with a
potential to more than double the footprint and enter more than 100 new cities
from currently 242 cities.
Disciplined approach
Notably, VFL management’s disciplined growth approach, evident from Mohey and
Twamev’s gradual scale-up, has ensured that the company does not face the risk of
bloated working capital or aggressive inventory write-downs. VFL’s no discount and
limited dead stock ensures that it does not aggressively chase growth, which could
impact profitability adversely and retract scale.
March 2023 38
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March 2023 39
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Key risks
March 2023 40
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Governance pointers
The proportion of independent directors on the board is 50% (3 out of 6
directors) as of Mar’22.
The promoter’s representation on the Board is moderate, with two of the six
directors (33%) being from the promoter family.
Mr. Ravi Modi (promoter family) is a member of the audit committee. As a good
practice, only independent non-conflicted members should comprise the audit
committee.
CSR initiatives
Mr. Ravi Modi is the chairperson of the CSR committee.
During FY22, VFL undertook CSR initiatives in the following areas:
Environment Sustainability
Animal Welfare
Health care
Education
VFL spent the entire CSR expenditure allocation of INR52m in FY22 (as per 2% of
three-year average profit).
March 2023 41
Vedant Fashions
SWOT analysis
Strong margin profile, Its business is highly Huge domestic Demand pressure in
combining the market of 9.5-10m the discretionary
concentrated on
strengths of a brand weddings per year spending space due
and a retailer Indian wedding and Widening of market to inflationary
Data-backed decision celebration wear and size on the back of pressures
making and strong is vulnerable to multi-day and multi- Increased
control over supply event wedding competition from
chain leading to no variations in demand celebrations and larger players
rd
discounted sales Reliance on 3 party extending the entering the
Asset-light expansion job workers for offerings beyond segment.
model leading to Bride and Groom
production could
lower capex and Shift from tailored to
improved cash flows hamper business ready-to-wear
operations in case of celebration ethnic
any disturbances apparel and
acceptability of
brands
March 2023 42
Vedant Fashions
Bear Case
In the bear case, we assume a 2% volume CAGR over FY23-25E v/s a 5% CAGR in
the base case. We assume a 17%/17% CAGR in revenue/PAT (21%/22% in base
case) over FY23-25E.
A slower revenue growth can be attributed to a slower pickup in new categories,
which hurts store productivity and expansion growth.
Assuming a target multiple of 40x in the bear case v/s 55x in the base case, we
arrive at a bear case TP of INR945 (downside of 14%) v/s a base case TP of
INR1,400 (upside of 27%), based on FY25E EPS.
March 2023 43
Vedant Fashions
Company overview
Incorporated in 2002 in Kolkata, West Bengal, VFL caters to the Indian
celebration wear market with a diverse portfolio of brands.
The company focuses on enhancing its leadership position within the organized
Indian wedding and celebration wear market through its various brands
including its flagship brand Manyavar, Twamev and Manthan within men’s wear
and Mohey in the women’s Indian wedding and celebration wear market.
The company has a pan-India presence with a retail footprint of 1.4m sq. ft.
covering over 240 cities and 640 stores (including international locations such as
the US, Canada and the UAE). It was the largest company in India in the men’s
Indian wedding and celebration wear segment in terms of revenue, operating
profit and profit after tax as of FY20 (source: CRISIL report).
In Feb’22, the company came out with a public issue of INR31.5b, which was
entirely an offer for sale (OFS) by promoters and investors.
Apart from promoters, PE funds like Rhine Holdings and Kedaara AIF offered
their holdings in the IPO.
The IPO shares were allotted at the price of INR866 per share.
March 2023 44
Vedant Fashions
Management overview
Mr. Ravi Modi - Chairman and Managing Director
Mr. Ravi Modi, a promoter of the company, has over two decades of experience in
the garment industry. He completed his studies in commerce from St. Xavier’s
College, Calcutta University. He oversees the design and marketing functions of the
company. He was recognized by Forbes India in Aug’17 as one of the 13 business
leaders who have built big businesses without relying on external investors –
“Bootstrapped Bosses”.
March 2023 45
Vedant Fashions
Gross Block 3,146 4,961 5,972 6,345 7,845 8,763 10,071 11,596
Less: Accum. Deprn. 141 745 1,062 1,912 2,856 3,757 5,066 6,574
Net Fixed Assets 3,006 4,216 4,909 4,432 4,989 5,006 5,005 5,023
Other Non-Current 157 921 836 820 867 867 867 867
Capital WIP 7 25 3 4 1 3 3 3
Total Investments 1,774 2,287 4,397 5,790 5,608 5,608 5,608 5,608
Curr. Assets, Loans & Adv. 4,403 5,737 5,765 5,195 6,219 10,015 14,407 19,713
Inventory 894 909 1,209 1,012 1,430 1,842 2,225 2,686
Account Receivables 3,166 3,327 3,721 3,612 3,967 5,159 6,229 7,522
Cash and Bank Balance 10 1,194 199 71 39 2,285 5,199 8,737
Loans and Advances 333 306 637 500 783 729 755 768
Curr. Liability & Prov. 1,348 1,384 1,588 1,890 2,580 2,860 3,452 4,168
Account Payables 434 581 504 499 730 837 1,009 1,218
Other Current Liabilities 912 801 1,080 1,387 1,845 2,017 2,436 2,941
Provisions 2 2 4 4 4 6 7 8
Net Current Assets 3,055 4,352 4,178 3,305 3,639 7,155 10,956 15,545
Deferred Tax assets 0 0 6 16 13 13 13 13
Appl. of Funds 7,998 11,801 14,328 14,367 15,118 18,652 22,451 27,058
E: MOFSL Estimates
March 2023 46
Vedant Fashions
March 2023 47
REPORT GALLERY
March 2023 49
Vedant Fashions
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from
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March 2023 50