Broker’s call: Go Fashion (Buy)

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Target: ₹1,350

CMP: ₹1,078.65

We visited multiple Go Colors (GO) stores across Mumbai to validate our thesis around the bottom-wear category and its TAM. Our conviction on category relevance got strengthened when we saw customers walking in with their tops to find their perfect colour match.

GO is expanding portfolio (over 50 styles) enables a strong cross/up-selling opportunity and TAM expansion with focus on Active/Denims/Girls/Plus categories, reflecting in healthy units per bill of about 2.3. We were pleasantly surprised with the kind of traction GO receives in both premium locations (Lokhandwala/Linking Road) and mass hubs (Borivali/Dadar), suggesting that its consumers are across income brackets.

In line with evolving consumer preferences, the stock allocation to non-core categories has now increased to over 70 per cent in its stores. Demand trends (SSG) and store expansion are also improving, providing confidence on around 30 per cent PAT CAGR over FY24-27. The stock is currently trading at attractive valuations and further WC optimisation/pledge reduction should be potential triggers.

After a dream listing (90 per cent premium) in November 2021, the stock has since given muted returns. We believe the sluggish performance is due to muted demand, medially-elevated working capital and delay in reduction of pledged shares. In our view, we should start seeing improvement across all these fronts in coming quarters, providing scope for a healthy re-rating.