Vedant Fashion Fundamental Analysis: Why I am buying MANYAVAR Shares?

The wedding season is around the corner and everyone is spending big on their weddings. On a comparative basis, wedding spending seems to be a race towards the abyss wherein no one exercises any control and spends heavily on every aspect of the wedding. From the perfect wedding invitation card to the most picturesque outfit for the bride and the groom, purse strings are let loose.

This means a flow of heavy money across the market. From wedding planners to boutique owners selling their outfits everyone gets a piece of the pie. If you have noticed television commercials or advertisements of any sort it’s really hard to miss an advertisement for Manayavar and Mohey. These brands which cater to the need for wedding outfits in India are owned by Vedant Fashions. This article focuses on doing a fundamental analysis of Vedant Fashions to help investors make the decision.

Analysis of the Industry

Vedant Fashions operates across the wedding industry in India. Therefore before moving forward to Vedant Fashions let’s try to get a brief understanding of the wedding sector in India.

If you look at the wedding sector in India you will realise that it runs as an unorganised sector. There’s little to no formalisation regarding the players across the market. However, across such an unorganised sector, the branded segment has occupied around 20% of the market. If we look at the size of the wedding sector we can get a brief understanding from the statement released by the Confederation of All India Traders (CAIT) which stated that around ₹3.75 lakh crore will enter the market through the wedding season which is expected to pick up steam from 14th of January,2023.

If we try to analyse the ethnic wear segment of the wedding industry we can quickly understand a new trend in India. People are shifting from tailor-made garments towards readymade garments. And the number of people shifting towards readymade garments will keep rising over the years which will rapidly power the growth of this segment. If we look through the statistics of the ethnic wear market of India we will realise that branded clothing occupies around 35-40% of the market in this segment. If we look at the upcoming growth rate of this segment we will see that its growth is much faster than its competitor ie. the unbranded ethnic wear segment.

What is Vedanta fashion?

Vedanta fashion can be considered a conglomerate operating in the branded ethnic wear segment in the market. It has branded itself as the only brand that can satisfy all your needs related to the outfits for a wedding. It operates in the market through a horde of brands such as Manyavar, Mohey, Manthan and Twamev. These brands operate across various segments of the market.

The company began by selling apparel to various outlets which stocked various brands in the market. After the introduction of Company Owned Company Operated (COCO) models or Exclusive Brand Outlets (EOB) the company clearly understood the priorities and choices of the customer and how to provide the customer with the perfect fit.

To further expand across the market and in a quest for more capital the company further transitioned and started operating as a Franchise-Owned and Franchise-Operated model.

How does the manufacturing of Vedanta function?

Vedanta Fashion functions through an asset-light business model. Its production is outsourced to various third-party associates while some processes are strictly done by the company itself. This helps to maintain the quality of the product by checking it and finalising it at various aspects of the production channel. The total production capacity of the company is around 3 million product pieces per year.

What is the distribution channel of Vedanta Fashion?

The distribution channel of Vedanta Fashion maintains a dual pathway. One aspect of the pathway is through the Manyavar stores which have a network of 600 stores with a presence across 3 countries. Apart from that, the company has 11 international stores. The first EBO of the company was launched in Dubai. This was followed by subsequent stores across Nepal and the USA.

The second aspect of the pathway is through various partnerships with retail stores such as Lifestyle, Central or Ethnicity. Apart from brick-and-mortar stores Manyavar also maintains its online presence by operating its online stores.

What is the moat and competition of Vedanta Fashion?

A quick overview of the business will help us realise the fact that revenue isn’t an issue with the company because weddings are usually known for high spending. In such an environment the brands operated by Vedanta Fashion have positioned themselves as a key player in the branded segment.

If we look at the functioning of the company it operates through its only central warehouse located in Kolkata wherein local artisans are employed to craft the outfits. Apart from that, the entire inventory is automated which has resulted in a massive cut across the operating expenditure of the company. A peculiar trait across the brands owned by Vedanta is that they don’t provide discounts which are unique compared to various other apparel brands operating across the market.

Recently the MD of Vedanta Fashion revealed the moat and competition aspect of the company. He highlighted the fact that the ethnic wear market of India is priced at approximately lakh crore. Such a vast market can easily swallow various competitors. But he also mentioned the fact that the entire process is difficult because the planning for outfits has to be executed half a year before the wedding

Talking about the moat of Vedanta Fashion he highlighted the fact that the company has been collecting user data for the past two decades. This enormous data has given them a serious breakthrough to understand the entire ethnic wear market in India. He further highlighted that in a culturally diverse market like India where the preference of a user can change within 50kms of the radius, such a vast amount of data can work out huge wonders for the business. He said that this is a very crucial moat that is enjoyed by Vedanta Fashion.

However, while talking about the competition he mentioned the fact that various big-time conglomerates such as Aditya Birla Group or Reliance retail have been struggling to gain a foothold in the market. Word orders itself in the sector and has been repeatedly partnering with some reputed names such as Manish Malhotra, Sabyasachi, Satya Paul, Ritu Kumar etc. These brand collaborations pose a serious challenge to Vedanta Fashion.

What are the revenue and profitability of Vedanta Fashion?

If we look at the numbers around Vedanta Fashion we will notice a slowly increasing percentage of revenue over the years. While the company had a short bout of losses in FY21 during the pandemic it immediately had a rebound streak in FY 22. The revenue om has witnessed revenue growth of 6.5% at a five-year CAGR. The net profit grew at a CAGR of 9.57%. Another healthy sign regarding the company’s strong financials is an increasing trend witnessed across the percentage of profit margins. The net profit margin accounted for for for by the company for FY22 is 30.62%.

The company has a market capitalization of ₹31,877 crores. The company has allocated earnings per share of around ₹15.92. This signifies the fact that ₹15.92 is earned by every individual on each stock. The shares of Vedanta Fashion have a P/E ratio of 82.9. This PE is higher than the PE of the company. A high PE ratio signifies the fact that the investors of the company are expecting heavy growth in the future or the entire stock price might be overvalued.

If we look at the return on equity (ROE) generated by Vedanta Fashion it is around 29.07%. This metric indicates the fact that the company generates a higher profit on the deployment of equity by the company. The return on capital employed (ROCE) is around 41.53%. This metric indicates the fact that on each ₹100 deployed by the company for business it generates ₹41.53%.

The company possessed an adequate debt-to-equity ratio in the past but over the years it has worked its finances in a manner that the company is currently debt free. The debt-to-equity ratio of the company is 2.2% which indicates that its assets are more than double abilities.

If we look at the ownership of the company, the promoters in the company hold 84.91% of the company while the retail investors occupy a 2% stake in the company. The remaining percentage of the company is held by FIIs and DIIs. While FIIs amount to a 3.35% stake the DIIs occupy around 9.74% stake. Apart from that, the promoters holding have a zero pledge in the market.

What are the prospects of Vedanta Fashion?

The hype around weddings is increasing day by day and families are opting for various types of wedding with various outfits in a single day which will directly increase revenue for Vedanta. Apart from that Manyavar and Mohey have started positioning themselves as a brand expanding across various categories in ethnic wear.

The company is positive about its future growth due to several factors. The strengthening of the omnichannel network of the company will severely increase its revenues of the company. Apart from that, the company is planning various acquisitions with a disciplined approach To expand its footprint across the market.