We hosted GOCOLORS (GO) for an Asia roadshow. GO remains confident of delivering medium-term revenue CAGR of >20%, with SSG recovery also helping EBITDA margin get back to the 20-21% range (vs 18% in FY24). GO is already witnessing a SSG revival in Q2TD (vs flat SSG over the past 5 quarters) and remains hopeful of ending H2 on an even stronger note (~5%). The company is continuously refreshing its portfolio with new launches across pants, jeggings, athleisure, and denim categories; the mix of core leggings/churidar has now reduced to ~40% vs >80% before the pandemic. WC optimization remains on track as GO is targeting to deliver best-in-class cash conversion of ~60% in the retail universe (CFO/EBITDA). After a dream listing in Nov-21, the stock has remained sideways due to intermediate inflated working capital and macro headwinds. In our view, improving SSG trends, initial signs of consolidation, and strong cash flows should trigger a re-rating.
OutlookWe upgrade our TP to Rs1,600/share, helped by 10% increase in our TP multiple and roll-over to Sep-26E earnings. Better traction in LFS/MBO channels and faster ramp-up of partnership with Apparel Group remain potential upsides.
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