Vedant Fashions faces rating cuts after Q1 nos on punchy valuations

On Wednesday, the scrip plunged 9.03 per cent to hit a low of Rs 1,180 over its previous day’s close of Rs 1,297.20

Punchy valuations drive our downgrade to sell, said Kotak Institutional Equities, which has a target of Rs 1,075 for the stock from Rs 1,000 earlier. This is even as the brokerage has raised its FY2023-25E EPS estimates by 5-10 per cent on account of strong momentum in wedding demand and higher margin forecasts.

has downgraded Vedant Fashions to ‘hold’, as a 25 per cent run-up in its shares since its initiation report “has lifted its valuation and capped near-term upside potential.”

Vedant Fashions, which got listed in February, has rallied 39 per cent over its issue price of Rs 866.

The company has reported a 123.2 per cent YoY rise in net profit at Rs 100.90 crore from Rs 45.20 crore YoY, with profit margin rising to 31 per cent from 28.2 per cent YoY. Revenue for the quarter rose 103 per cent YoY to Rs 325 crore from Rs 160 crore YoY.

“Baking in revenue outperformance (6 per cent) and higher margins lifts our FY23 and FY24E EPS by 4 per cent each. Rolling over the valuation to 9MFY24E yields a target of Rs 1,310. A notable reduction in working capital and superior growth trajectory (potentially via Mohey) would be the triggers for a further re-rating,” Edelweiss said.

IIFL said Vedant’s performance was strong in Q1, with secondary sales 60 per cent above pre-Covid level as demand was strong across channels resulting in higher footfalls and better merchandise mix. Same store sale (SSG) stood at 25 per cent YoY.

“Primary sales growth of 103.1 per cent YoY on a soft base reflected a volume growth of 102.3 per cent and ASP growth of 1.4 per cent. Gross margin of 68.8 per cent was healthy and management expects FY23 gross margin to be in the range of 66-67 per cent,” it said.

The company plans to open standalone Mohey outlets in FY23 on the back of positive trends of all key performance metrics of the brand. “From being housed along with Manyavar format only, progress in Mohey sits well with our thesis of diversifying beyond Manyavar and can contribute materially in the growth of Vedant,” IIFL said.

This brokerage has upgraded its FY23/24/25 EPS estimate by 10 per cent, forecasting higher Ebitda margin of 49 per cent in-line with 50.2 per cent Ebitda margin posted in June quarter.

“We like VFL as it is the category leader in the branded Indian wedding wear market with industry leading margins and returns and maintains our Buy rating. TP is Rs 1,400,” IIFL said. This target suggests mere 8 per cent upside over Monday’s closing price.

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