Go Fashion jumps 5% as MOFSL says 'Buy' stock for 31% upside

Shares of Go Fashion (India) Ltd rose five per cent in Tuesday's trade after domestic brokerage Motilal Oswal Financial Services Ltd (MOFSL) initiated coverage with a 'Buy' rating, setting a target price of Rs 1,127. The price target implies a potential upside of thirty-one per cent from Monday’s closing level.

Go Fashion shares are down 22 per cent over the past six months. The stock currently trades at 34 times its estimated FY27 earnings per share (EPS), while MOFSL has valued it at 45 times FY27E EPS to arrive at its target price.

In intraday trade, the stock climbed as much as 5.09 per cent, hitting a high of Rs 904.50.

MOFSL noted that "GOCOLORS is well-positioned to leverage its leadership in the women’s bottom-wear segment and its direct-to-consumer (D2C) model. With operations in 180 cities, the company still has significant expansion potential." The brokerage is modelling a sixteen per cent compound annual growth rate (CAGR) in revenue from FY25 to FY28, driven by an eighteen per cent CAGR in exclusive brand outlets (EBO) and online channels.

Although Go Fashion’s gross margin may decline by one hundred and thirty basis points due to the pass-through of raw material cost benefits, MOFSL expects operating leverage to support a one hundred and thirty-five basis point improvement in EBITDA margin, taking it to eighteen point two per cent.

MOFSL further projected that EBITDA and profit after tax (PAT) would grow at nineteen per cent and twenty per cent CAGR, respectively, over FY25 to FY28. Strong operational performance is expected to generate cumulative operating cash flow and free cash flow of Rs 370 crore and Rs 250 crore, respectively.

Positioned as a core wardrobe essential, bottom wear addresses functional and repeat-use needs, making it less susceptible to seasonal fashion changes than top wear. MOFSL highlighted that its year-round relevance supports stable demand and pricing power, contributing to operational consistency.

The women’s bottom-wear segment, valued at Rs 13,500 crore in 2020, is the fastest-growing sub-category in the apparel market, with an expected CAGR of twelve per cent. However, the space remains highly fragmented and largely unorganised, with organised retail penetration projected to reach only thirty-eight per cent by 2025.

"GOCOLORS’s success stems from: 1) its exclusive focus on women’s bottom-wear, a structurally underserved category, which enabled the company to build deep domain expertise, high product variety, and strong brand recall, and 2) its early transition to the EBO model, which provided complete control over pricing, merchandising, and consumer experience," MOFSL said.

MOFSL said this distinctive strategy has helped GOCOLORS scale a brand-led retail presence across metro areas as well as Tier 2 and Tier 3 cities, reinforcing its leadership in a high-repeat, functional apparel segment.

However, MOFSL also flagged certain risks, including high reliance on Reliance Retail (which contributed 19 per cent of FY24 sales), a potentially subdued retail environment, intensifying competition, and a promoter pledge covering 11.30 per cent of equity.