Go Fashion (Go Colors) IPO review (May apply)

•    GFIL's Go Colors is one of the leading women bottoms wear brands in India.
•    The company has been posting losses from FY21 onwards.
•    Due to negative earnings for the last 15 months, its P/E cannot be ascertained.
•    Operation on an outsourcing basis turns risky as it increases dependence on 3rd party deals.
•    Risk seekers/cash surplus investors may consider long term investment.

ABOUT COMPANY:
Go Fashion (India) Ltd. (GFIL) is a women's bottom-wear brand in India, with a market share of approximately 8% in the branded women's bottom-wear market in Fiscal 2020. The women's apparel market is estimated to be approximately 36% of the total apparel market while the women's bottom-wear market contributed 8.3% of the women's apparel market in Fiscal 2020 (Source: Technopak Report). The company is operating on an outsourcing basis only.  GFIL is planning to increase its outlets from the current 450+ to over 2000+ in the next five-six years.

GFIL is engaged in the development, design, sourcing, marketing and retailing of a range of women's bottom-wear products under the brand, 'Go Colors'. It is among the few apparel companies in India to have identified the market opportunity in women's bottom-wear and have acted as a 'category creator' for bottom-wear. GFIL is the first company to launch a brand exclusively dedicated to women's bottom-wear category and have leveraged this advantage to create a direct-to-consumer brand with a diversified and differentiated product portfolio of premium quality products at competitive prices. (Source: Technopak Report)

The share of organized retailing within women's apparel has increased from 19% in Fiscal 2015 to 27% in Fiscal 2020 and is expected to reach 42% by Fiscal 2025. This rapid growth is attributable to a growing female population, increasing number of working women, evolving fashion trends, and rising spending power of consumers. In particular, women's bottom-wear is the fastest-growing category in the women's apparel segment market. The organised share of women's bottom-wear market is expected to reach a market share of 38% in Fiscal 2025 growing at a CAGR of 24.3% until 2025. The women's clothing market in India has evolved in the past decade from the traditional one-piece apparel, like the saree, to two-piece and mix-and-match apparel, with bottom-wear becoming an essential category that caters to the basic and functional needs of consumers. Today, bottom-wear has become a must-have that provides comfort as well as style and is a round-the-year universal category that is not subject to seasonal trends. 

Historically, the bottom-wear market, being highly unorganized, has had limited options for consumers to access branded products of consistent quality. (Source: Technopak Report). GFIL offers one of the widest portfolios of bottom-wear products among women's apparel retailers in India in terms of colours and styles, as of July 2021 (Source: Technopak Report). The company's bottom-wear products, which include churidars, leggings, dhotis, harem pants, patiala, palazzos, culottes, pants, trousers and jeggings, are sold across multiple categories such as ethnic wear, western wear, fusion wear, athleisure, denim, plus sizes and girls wear making its portfolio 'universal' and for every occasion. As of September 30, 2021, it sold bottom-wear in over 50 styles in more than 120 colours. GFIL designs its products to cater to women across all age groups and girls and fits that are suitable to various body types and physiques. These factors, coupled with the lack of seasonality, ensure that the portfolio is resistant to redundancy from fashion trends.

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its plans for funding roll out of 120 new EBOs (Rs. 33.73 cr.), working capital (Rs. 61.40 cr.) and general corporate purpose, GFIL is coming out with its maiden IPO via book building route. It is a combo offer consisting of a fresh equity issue (approx. 1811586 shares at the upper cap) worth Rs. 125 cr. and an offer for sale (OFS) of 12878389 shares (approx. Rs. 888.61 cr. at the upper cap) having a face value of Rs. 10 each. Thus the overall size of the IPO is Rs. 1013.61 cr. for 14689975 shares. The company has fixed a price band of Rs. 655.00 - Rs. 690.00 per share. The minimum application is to be made for 21 shares and in multiples thereon, thereafter. GFIL has allocated 75% for QIBs, 15% for HNIs and 10% for the Retail investors. 

The issue opens for subscription on November 17, 2021, and will close on November 22, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 27.20% of the post issue paid-up capital of the company. 

The joint Book Running Lead Managers (BRLMs) to this offer are JM Financial Ltd., DAM Capital Advisors Ltd. and ICICI Securities Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised/converted further equity capital in the price range of Rs. 240.04 to Rs. 416.69 between December 2014 and October 2021. It has also issued bonus shares in the ratio of 1 for 1 in March 2017 and 1 for 2 in October 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 1.67, Rs. 40.01, Rs. 138.90 and Rs. 168.33 per share. 

Post issue, GFIL's current paid-up equity capital of Rs. 52.20 cr. to Rs. 54.01 cr. Based on the upper price band of the issue, the company is looking for a market cap of Rs. 3726.62 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, GFIL has posted turnover/net profits (loss) of Rs. 290.98 cr. / Rs. 30.94 cr. (FY19), Rs. 396.84 cr. / Rs. 52.63 cr. (FY20), Rs. 282.25 cr. / Rs. - (3.54) cr. (FY21). Thus is has suffered a severe setback for FY 21 the pandemic year and that prolonged till now as for first quarter of FY22 ended on June 30, 2021, it has incurred a loss of Rs. - (19.00) cr. on a turnover of Rs. 40.29 cr. 

For the last three fiscals, GFIL has posted an average EPS of Rs. 4.01 and an average RoNW of 7.76%. The issue is priced at a P/BV of 13.65 based on its NAV of Rs. 50.56 as of June 30, 2021, and at a P/BV of 9.58 based on its post-issue NAV of Rs. 72.01 (at the upper cap).

As the company has posted losses for FY21 and Q1-FY22, its P/E cannot be ascertained. 

DIVIDEND POLICY:
The company has not paid any dividends on the equity shares so far, however, it has paid 0.01% dividends on preference shares from FY19 to FY22 till the filing of this offer RHP. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown Page Industries, Trent Ltd., Bata India, AB Fashion & Retail and TCNS Clothing as its listed peers. They are currently trading at a P/E of 114.44, 211.42, 00, 00 and 00 (as of November 12, 2021). However, they are not truly comparable on an apple to apple basis. In fact, TCNS can be nearer peer in terms of products portfolios.

MERCHANT BANKERS' PERFORMANCE:
The three BRLMs associated with this issue have handled 48 public issues in the past three years, out of which 16 issues closed below the offer price on the listing date.