Vedant Fashions could lose its business to competition this wedding season: ICICI Securities

Domestic brokerage ICICI Securities has raised concerns for Vedant Fashions, famously known for its brand Manyavar, losing its business to competition amid lower number of wedding days this year. 

The brokerage believes that wedding days and a number of weddings are critical for the success of Vedant’s business model. As per analysts at ICICI Securities, wedding days data over the last 15 years suggests the following about Vedant Fashions:

>>The correlation between wedding days and Vedant’s revenue growth is 0.73 (FY11-24).

>> A lower number of wedding days potentially leads to market share loss to unorganised segments due to service-related capacity constraints of stores.

>> FY25E has one of the lowest numbers of wedding days (at 54 days) over the last ten years; this may lead to a downgrade in consensus estimates.

Furthermore, the brokerage reckons that given the backdrop of the number of wedding days, Vedant Fashions' same-store sales growth (SSSG) performance may remain volatile (possible SSSG downgrade in consensus estimates) for Vedant in the medium term.

However, as per the report, a positive retail expansion rate at around 14 per cent year-on-year (YoY) in FY22-24 does inspire confidence in Vedant’s business model/economics; compared to other retail players such as Pizza Hut, Pantaloons, etc. which have cut their retail expansion guidance due to underperformance in the underlying business.

Moreover, analysts do not observe any material threat from regional organised competitions to Vedant and are confident in the company's price-quality equation as compared to the competition.

ICICI Securities maintained its earnings estimates and model revenue, EBITDA, and PAT CAGRs of 20 per cent, 24 per cent, and 25 per cent, respectively, over FY24E-FY26E. The brokerage maintained 'add' with an unchanged target price of Rs 1,000 apiece.

Key downside risks to look for are: 

>> Slower-than-expected pick-up in discretionary consumption.

>> Rise in competition from branded retailers.

In a year, Vedant Fashion's shares have lost over 28 per cent against Nifty50's rise of 25 per cent. 

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