Go Fashion IPO: Worth investing?

In the animal kingdom, the males of the species have a tendency to be more flamboyant and aesthetically pleasing, but this feature exists more to fulfill a basal need of ensuring the survival of the species. 

Deliberate aesthetic development or fashion is a more human aspect, that serves more psychological and personal needs than survival needs.

Fashion as a part of the society, while applying to every possible demographic, has a higher tendency to be portrayed with greater proficiency by women, in a contrast to what would be seen among other animals. With a wider variety of options available in terms of designs, colors, and styles, female fashion is definitely increasing the average appearance of the human race.

Speaking from a financial standpoint, the fashion industry is an ever-growing one with changes in trend being its biggest driving force. Go Fashion, a company with women’s bottom wear apparel as its prime arsenal is bringing its IPO to the masses. Let’s see if they will be trendsetters or will they wash out.

Industry Overview

The company operates in the apparel retail segment of the country. Taking a view over the industry, in the Fiscal year 2020, the Indian retail market was worth 796 billion (US$ 5,970,000 crores), with a CAGR of 6.23 percent predicted to reach US$ 1,077 billion (US$ 8,077,500 crores) by Fiscal 2025. 

In FY20, the women's clothing market was anticipated to account for over 36% of the entire apparel market, with the women's bottom-wear market accounting for 8.3% of the women's apparel market. 

Apparel & Accessories market share is predicted to increase by 9% in Fiscal 2025, with a CAGR of 8.8% from Fiscal 2020 to Fiscal 2025. After Pharmacy and Wellness, which is increasing at a CAGR of 9.4%, it is the fastest-growing category. 

While China and the United States are the largest markets, India is the world's third-largest clothing market, tied with Japan and Germany in terms of value. However, as compared to Japan and Germany, India's unit consumption is predicted to be more than four times higher, demonstrating that the Indian market is dominated by value fashion. 

Now we can move forward with this information and find out more about this fashion company.

Company Overview

The company operates in the women’s bottom wear brands. It was founded in 2010. It majorly operates under the brand name of Go colors. A variety of women's bottom-wear goods are developed, designed, sourced, marketed, and sold solely by the company. It has a market share of approximately 8% 

The firm has 450 exclusive brand stores (EBOs) scattered throughout 23 states and union territories in India as of May 31, 2021. Large format shops (LFSs) such as Reliance Retail Limited, Central, Unlimited, Globus Stores Private Limited, and Spencer's Retail are among the company's distribution networks. The number of LFSs in the firm has increased from 925 in 2019 to 1,270 in September 2021. 

Products are also sold through the company's website, online marketplaces, and multi-brand shops (MBOs). PKS Family and VKS Family Trust each own 28.74 percent of the company, Sequoia Capital 28.73 percent, India Advantage Fund 12.69 percent, and Dynamic India Fund 1.1 percent.

Moving forward let's look at the key details of the IPO

Key details of the IPO

IPO Details
IPO Opening date	Nov 17, 2021
IPO Closing date	Nov 22, 2021
Issue Type	Book Built issue IPO
Face Value	Rs. 10 per equity share
IPO Price band	₹655- ₹690
Market Lot	21  shares
Listing At	BSE, NSE
Issue size	Rs. 1013.6 Cr

The offer includes a Rs 125 crore new issuance as well as an offer for sale. With an issue size of 1013.6 Cr. What is it that the company is planning to do? Let’s have a look at that.

Purpose of the IPO

The company is going to fund the expansion of outlets. With this capital, it will roll out around 120 new Go Colors outlets pan India. 

Another way, how the company will be using these raised funds will be through working capital requirements. 

Apart from these major purposes regarding the usage of IPO funds, the company is planning to gain benefit from the listing of the company on stock exchanges and will also lead to enhance the name of the brand among the potential and existing customer base as well as providing a public platform from freely trading the shares of the company by the investors. 

This would be needless to mention but no analysis would be complete without looking at the financials of the company. So, let's take a look!

Financials of the company

The company has a debt to equity ratio of 0.04 which is quite a good number, as the company does not have any long-term borrowings in its balance sheet. 

Talking about the sales figures, Revenues from operations decreased by 36.06% from ₹ 3,920.14 million in Fiscal 2020 to ₹ 2,506.68 million in Fiscal 2021, primarily due to a decrease in retail sales and other operating revenue including scrap sale, on account of the COVID-19 pandemic. 

The company reported a loss before tax of ₹ 31.35 million in Fiscal 2021 compared to a profit of ₹ 682.86 million in Fiscal 2020, below is the data of profit after tax.

The main reason behind this decline is the reduction in customer footfalls and the reduction in-store operations during the unprecedented times of covid-19. 

That's plenty of information already. Now without waiting any more let's move towards the strengths & weaknesses of the company.

Strengths

Leading player in the market

One of the company’s major strengths is, it is the leading player in the women’s bottom wear segment. Other players which are present in the market do not provide the kind of variety Go fashion provides. 

Client base- women of all ages and shapes

The company sold bottom-wear in over 50 styles in more than 120 colors. The products are designed to appeal to women of all ages and girls, with fits that are appropriate for a variety of body shapes and physiques.

Multi-channel retail presence

Apart from this, the company has a multi-channel retail presence which shows it has low dependence on the supply chain. And this retail presence will help the company to increase its market share and expand into other apparel segments in the future. 

450 EBOs

The customers are primarily catered through its extensive network of 450 exclusive brand outlets (“EBOs”) (including 12 kiosks operated on a “company-owned and company-operated” (“COCO”) model and 11 franchise stores) that are spread across 23 states and union territories in India. 

First- mover advantage

Currently, the company is having the first-mover advantage and is able to sustain it as of now. It is one of the few Indian garment firms to see the market possibility in women's bottom-wear and serve as a 'category builder' for the category.

Increase in purchasing power

This rapid expansion is due to a growing female population, an increase in the number of working women, changing fashion trends, and expanding consumer buying power. 

In-house design

Another strength of the company is its in-house design. With their deep awareness of consumers' expectations, in-depth market research, and data analysis, their in-house design and the merchandising team creates and develops bottom-wear items across categories, assisting in the creation of the fit and comfort of our products. 

With so much of ‘taarif’, let’s look at some of the negatives about the company

Weaknesses

Chances of failing with just one brand

The company operates only through one brand, so if it will not be able to market this brand properly it will adversely affect the business of the company. 

Threat to intellectual property

There is currently a threat to the trademark on the name of “go colors” and if the company is unable to protect its property rights this will lead to an impact on the operations of the company. 

Risks associated with lease agreements

Another risk is associated with the lease agreement of the real estate for opening stores in multiple locations. If the agreement is not up to the mark, it will adversely impact the operations considering the major business of the company is dependent on the physical stores. 

Presence in retail stores in the virtual era

Considering everything is shifting on online platforms especially for shopping, the company faces issues in expanding and enhancing its presence in the retail scenario. 

Seasonal sales 

Another risk with the business model is the seasonal variant. The company has a higher amount of sales in the festive season compared to other periods. This may also result in fluctuations in future cash flows from revenues for the company.

Conclusion

With fashion always staying in style, Go Fashion seems to have that beast tamed. As long as it can keep the business aspect of its apparel company on lock, they should have no trouble, setting pretty in the coming future.

With a loss in the last financial year and future expansion plans, the company might have a bit of trouble hitting its stride, but if past figures are to be trusted the loss seems to be an outlier as a result of the ongoing pandemic and growth is only a natural step in the lifetime of a business.

So what do you think? Will your portfolio be rocking these stocks or will you let this one sit in the closet for a bit? Let us know in the comments section and share with your peers.