Vedant Fashions resilient Q1 margins beat estimates as demand recovery remains key

Investment View and Valuation

Motilal Oswal Financial Services’ July 27, 2026 results update retains a Neutral rating on Vedant Fashions and raises the target price to Rs 460 from Rs 440. The broker considers the valuation more reasonable after the stock’s steep correction, but awaits evidence of a sustainable demand recovery and earnings acceleration before becoming constructive.

Vedant Fashions delivered a resilient Q1 FY27 despite Adhikmaas removing weddings for one month. However, MOFSL believes the company’s growth and profitability have remained structurally weak since FY23. At the report CMP, the stock traded at around 25 times FY27E EPS, despite annual free cash flow of around Rs 3 billion and return on equity of around 18 per cent.

Q1 FY27 Financial Performance

Customer sales grew 3.4 per cent year-on-year to Rs 4.2 billion in Q1 FY27, although they remained 16 per cent below Q1 FY23. Revenue increased around 7 per cent year-on-year to Rs 3.0 billion, 6 per cent above MOFSL’s estimate, but remained below Q1 FY23 and Q1 FY24 levels. Same-store sales growth was 3.8 per cent, compared with 17.6 per cent in Q1 FY26 and around 2.7 per cent in FY26; price increases and volume contributed equally.

EBITDA margin expansion was supported by revenue growth, operating leverage and cost discipline. Employee expense declined 3 per cent year-on-year, while other expenses were broadly flat. Reported PAT benefited from stronger EBITDA and lower depreciation and amortisation, although it remained below Q1 FY23 and Q1 FY24 levels.

Retail Network and Store Strategy

The retail network contracted ahead of the seasonal lull. Net retail area fell around 15,000 square feet to 1.77 million square feet, down 1 per cent year-on-year. Store count declined by 18 sequentially and 33 year-on-year to 651, following the closure of seven domestic EBOs, eight SIS stores and three international EBOs.

Management said its priority is improving retail-network quality rather than simply opening stores. It expects like-for-like growth to improve meaningfully in H2 FY27 and would then accelerate store openings if rentals remain reasonable. Management expects net positive retail-area additions in FY27 despite potential store closures of 3-4 per cent.

The company targets healthy high-single-digit same-store sales growth, supported by premium products, higher average selling prices and repeat purchases. Mohey and Twamev outperformed company-level same-store sales growth in Q1 FY27.

Demand and Wedding Calendar Outlook

Management expects FY27’s wedding calendar to be marginally better than FY26. September and October may be soft because of delayed festive demand and weddings, while November to March should be strong. It also sees competitive intensity easing, as closures at younger competitors exceed new openings in several markets.

Management noted that celebration wear remains difficult because of dead-stock pressure, but cited Vedant Fashions’ roughly 3 per cent dead-stock and superior margins as advantages.

Key Headwinds and Forecast Changes

MOFSL identifies the following key headwinds:

• Rising organised competition in ethnic wear.
• Slower-than-expected migration from unorganised to organised retail.
• Subdued demand in mid-premium categories.
• An uneven wedding calendar.

The broker notes that sales have risen at less than 3 per cent CAGR since FY23. MOFSL fine-tuned its FY27 and FY28 forecasts, reducing revenue estimates by 0.4 per cent and 1.9 per cent, and EBITDA estimates by 0.4 per cent and 2.0 per cent, respectively. FY27 and FY28 PAT and EPS estimates were raised by 2.5 per cent and 2.4 per cent, respectively.

MOFSL forecasts a 6-7 per cent CAGR in revenue, EBITDA and PAT over FY26-FY29E.

Target Price Basis

The revised target price of Rs 460 is based on 25 times September 2028E EPS of Rs 18.3, compared with the earlier June 2028E valuation reference. The Neutral rating reflects the more reasonable valuation after the correction, balanced against the need for clearer evidence of sustainable demand recovery and earnings acceleration.