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Go Fashion (India) Ltd., which owns and operates the popular women’s bottom-wear brand Go Colors, was in focus on Friday after investment banking firm Equirus initiated a ‘long’ rating on the stock.

Equirus gave a target price of Rs 1,493 on the Go Fashion stock, indicating an upside of more than 27 percent from Thursday’s closing level.

Explaining the rationale behind the move, Equirus said that Go Fashion is one of India’s first and largest players in the women's bottom-wear market with a market share of 8 percent. This market, which was of an estimated size of Rs 13,500 crore in 2019-20, is set to grow at a 12 percent CAGR (compounded annual growth rate) until the financial year 2025, which could augur well for Go Fashion.

Equirus said that it expected Go Fashion’s average return on equity (RoE)/return on capital employed (RoCE) to touch 20/25 percent in the financial year 2025 due to multiple factors.

Firstly, Go Fashion is seeing sharp growth in revenues at the company’s exclusive brand outlets (EBOs). It estimates that Go Fashion is witnessing a 39 percent CAGR in its EBO revenue.

Secondly, Equirus believed that Go Fashion is witnessing an improved margin profile driven by operating leverage and a channel mix shift.

And thirdly, the company also boasts of a robust FCF (free cash flow) generation. When free cash flow is positive, it indicates that the company is generating more cash than is used to run the business, which can be easily reinvested to grow operations further.

On November 30, 2021, shares of Go Fashion had listed on exchanges at a price of Rs 1,310 apiece, a premium of nearly 91 percent from the issue price of Rs 690. However, the stock has now fallen roughly 5 percent from that level in more than one year.

Shares of Go Fashion ended 1.80 percent higher at Rs 1,197 on Friday.

(Edited by : Rukmani Krishna)