Thread by @aditya_kondawar

A thread on Go Fashion India or GoColors IPO -

Everything you need to know about the company and the IPO!

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1/n

About Go Fashion India (Go Colors) Limited –

- An Indian women’s bottom-wear brand
- FY20 Market share of ~8% in branded women’s bottom-wear
- Women’s apparel market = 36% of the total apparel market
- Women’s bottom-wear market = 8.3% of women’s apparel market FY20

2/n

Products -

- As of Q2FY22 - sold bottom-wear in 50+ styles in 120+ colors.

Price range -

- ₹ 225 to ₹ 1,599

Average selling price (ASP) -

- FY21 - ₹ 584.02
- Q1FY22 - ₹ 619.05

3/n

Distribution –

- Exclusive brand outlets (EBO) including franchise stores, large format stores (LFS), multi-brand outlets (MBO), and online channels such as online retailers and their own websites.

4/n

EBOs -

- Majority of Sales is from EBOs
- Q1FY22 - Operated 459 EBOs (including franchise stores)
- Img 1 and 2 talk about stores, Capex, area, sales, cities, regions, etc
- They periodically close EBOs which are non-profit-making (Img 3)

5/n

As of Q1FY22 –

- 2855 employees (10 in design, 2517 front-end staff at EBOs+ LFS)
- Attrition - 4.27%
- Sourced RMs from 73 suppliers, finished products from 5 suppliers
- They do not own any manufacturing facilities - Job workers engaged in making everything (outsourcing)

6/n

Promoters & Directors (Src - Axis Direct) -

Issue Details -

- Total market cap of Rs 3727 cr post listing
- Fresh issue - Rs 125 cr
- OFS - Rs 889 cr

7/n

Objects of Issue -

- Rs 33.7 Cr - 120 new exclusive brand outlets (EBOs) to be opened
- Rs 61.3 cr being used to fund working capital requirements
- General corporate purposes

8/n

Risks -

- PEs invested in 2018. With CCPS conversion, their price is 170 or less. 3 yrs later IPO at 690 rs. 4x increase in 3 yrs with business making loss now. Why/How the 4x then?
- All PEs selling 50% of the stake except Dynamic India which is selling fully.

9/n

- Even 2 Promoter family trusts selling 50% of their stake
- Products cater to only female customers and are in a niche category i.e., only limited to bottom-wear Single warehouses located in Southern India.
- Inventory as % of current assets was 45.35% in Q1FY22

10/n

- Inventory turnover days - 118 in FY21
- Go Color competes with local retailers, non-branded products, economy brands, and products of other established brands
- Also competes with in-house brands launched by LFSs including those through which they retail their products

11/n

Pledge -

Promoters VKS Family Trust and PKS Family Trust have pledged 16.56% of total shares for a Rs 40 cr Loan

Pledges are really scary as the stock can take heavy beatings (as we have seen in the past few years with some pledged shares)

12/n

Financials -

- Comfortable Debt to Equity figure
- Flat revenue
- Flat EBITDA
- Net loss in FY21
- P&L took a hit due to COVID
- CFO and FCF is good, gradually improving (Majority IPO size OFS anyways)

13/n

Valuation -

- 3727 cr Mcap post issue
- As per FY21 Sales - 13.2x Price to Sales(P/S)
- As per FY20 sales - 9.4x P/S

14/n

The business prides itself on being the go-to brand for women's bottom wear with the highest range of products and being one of the largest players according to market shares

15/n

But we all know what happens when you pay frothy valuations for a business, you can end up with time correction/price correction

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price like Mr. Buffet Says.

16/n

Questions to think about -

- What is the moat?
- What is the growth prospect ahead?
- What multiple should be paid for a traditional apparel-making company?
- What happens when biggies enter the same market who can outspend and outreach them?

17/n

About the Market -

- Women’s bottom-wear market = 8.3% of women’s apparel market that was Rs 13547 Cr in FY20
- Expected to grow at a CAGR of 12.4% by FY25
- Share of bottom-wear in women’s apparel is expected to go to 9.6% by FY25 from 8.3% in FY20

(Src - Technopak)

18/n

The branded Indian womenswear segment is dominated by large national/regional Players like TCNS, BIBA, Global Desi, Go Colors, AND, H&M, Zara, M&S and Fabindia, Soch, etc

End of thread! Thanks for reading!

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