Shares of Go Fashion jumped 5% in Tuesday’s trade after Motilal Oswal Financial Services Ltd (MOFSL) initiated coverage with a ‘Buy’ rating. MOFSL set a target price of Rs 1,127, signaling a potential 31% upside from Monday’s closing price. Despite this jump, Go Fashion shares have been down 22% over the last six months.
Right now, Go Fashion trades at about 34 times its estimated earnings per share (EPS) for FY27. MOFSL values it higher—at 45 times FY27 EPS—to justify the Rs 1,127 target. During intraday trade, the stock even hit a high of Rs 904.50, reflecting strong buying interest.
What Does This Mean for You?
If you’re an investor, here’s the deal: Go Fashion, known for its brand GOCOLORS, is sitting pretty in the women’s bottom-wear market. MOFSL points out that this segment is a wardrobe essential, not a fad. Bottom wear sees steady demand because it’s less prone to seasonal swings, unlike tops that go in and out of style every season.
This means the company’s pricing stays firm, and sales don’t drop off a cliff when the latest trend changes. MOFSL expects revenue to grow at a solid 16% compound annual growth rate (CAGR) from FY25 to FY28, helped by an 18% CAGR growth in exclusive brand outlets (EBO) and online sales.
Why Is MOFSL So Bullish?
MOFSL highlights that GOCOLORS is expanding rapidly, operating in 180 cities with plenty of room to grow. The brokerage expects EBITDA margins to improve despite a slight hit to gross margins from raw material costs. They forecast a 19% CAGR in EBITDA and 20% CAGR in profit after tax (PAT) through FY25-28.
This translates into a projected cumulative operating cash flow of Rs 370 crore and free cash flow of Rs 250 crore, which sounds like solid money coming in the door.
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The Market and Competition
The women’s bottom-wear category is booming. Valued at Rs 13,500 crore in 2020, it’s the fastest-growing apparel sub-category with a 12% CAGR. However, the market remains fragmented, with only about 38% organized retail penetration expected by 2025. That means GOCOLORS has plenty of untapped potential.
The company’s focus on bottom wear alone helped it build deep expertise, a wide variety of products, and strong brand recall. Their early shift to exclusive brand outlets means better control over pricing and customer experience. This has helped GOCOLORS build a solid presence not just in metros, but also Tier 2 and Tier 3 cities.
Risks to Watch
No story is perfect. MOFSL flagged a few risks: heavy reliance on Reliance Retail (which makes up 19% of FY24 sales), a potentially slow retail market, rising competition, and promoter shares pledged for 11.3% of equity.
Still, the overall outlook remains positive for Go Fashion. If the company pulls off its expansion and margin improvement plans, this could be a strong growth story stitched with good fundamentals.
Go Fashion shares have had a rough patch, but MOFSL’s bullish call shows promise ahead. It’s a brand that understands its niche, controls its pricing, and keeps customers coming back for wardrobe essentials. For investors, that’s a combo worth watching.
Disclaimer:
This article is for informational purposes only and does not constitute investment advice. Please consult a certified financial advisor before making any investment decisions.
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