Motilal Oswal Assigns Rs 420 Target Price to Neutral Vedant Fashions

Motilal Oswal Reiterates Neutral Rating on Vedant Fashions

Vedant Fashions (VFL) is facing a prolonged slowdown, according to a recent research report by Motilal Oswal. The management attributes this slowdown to macro factors, including a decline in hiring by IT companies and weak discretionary demand in the mid-premium category. Additionally, the rise of organized competition in the ethnic wear space is also seen as a contributing factor.

The report notes that the number of organized ethnic wear stores has increased from 500 to 2,500 over the past few years, with some of this growth driven by VFL's high profitability. However, the majority of new entrants in the market are loss-making, and the pace of store openings has slowed down in recent times. To combat this slowdown, VFL is targeting a steady-state same-store sales growth (SSSG) of around 8%, driven by initiatives to boost footfalls, improve conversions, and increase annual average selling prices (ASPs) by 3-4%.

Motilal Oswal's analysts are forecasting a modest compound annual growth rate (CAGR) of around 5-6% for VFL's revenue, EBITDA, and earnings per share (EPS) over the fiscal years 2026-2028. This outlook is based on a mid-single-digit SSSG and a modest increase in net retail area addition. The report also highlights VFL's strong cash flow generation, with the company expected to produce around INR6 billion in free cash flow over the fiscal years 2026-2028, accompanied by a return on equity (RoE) of 17-18%.

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VFL's stock has corrected by 45% over the last 12 months and is currently trading at an earnings multiple of 28x its fiscal year 2027 EPS estimate. Despite this, Motilal Oswal's analysts remain cautious and are awaiting signs of a sustained demand recovery before turning constructive. As a result, the research firm is reiterating its Neutral rating on VFL with an unchanged target price of INR420, based on a price-to-earnings multiple of 25x fiscal year 2028 EPS.

Recommendation

Motilal Oswal recommends a Neutral rating on Vedant Fashions with an unchanged target price of INR420.

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