Vedant Fashions falls as promoter launches OFS to meet minimum public shareholding

The share price of Vedant Fashions, the parent of ethnic brand Manyavar, fell over 3 percent on May 18 as the promoter group Ravi Modi Family Trust launched an offer for sale to divest 9.8 percent stake.

The base offer is of 1.69 crore shares, representing 7 percent of the company’s entire shareholding. There is also an oversubscription option to offload an additional 69 lakh shares, representing 2.8 percent of the company’s share capital.

If the oversubscription option is exercised, the promoter will sell more than 2.39 crore shares, making for 9.88 percent stake.

At 9:15 am, the stock opened about 3.5 percent lower at Rs 1,198.15 per share. The stock is down over 8 percent in the past six months, but has gained 32 percent since listing.

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Promoter and promoter group stake in Vedant Fashions currently stands at 84.8 percent. Public shareholdings is a little over 15 percent. According to market regulator SEBI, minimum public shareholding has to be 25 percent, that’s why the promoters of Vedant Fashions are divesting some stake.

The floor price for the offer for sale has been set at Rs 1,161, which is a discount of 6.9 percent from May 17 closing price. The offer for sale opened for non-retail investors on May 18 and retail investors can participate on May 19.

As per Bloomberg, the stock has 7 Buy calls, 1 Hold and 1 Sell call. The consensus 12-month target on the stock is Rs 1,377, indicating  14-percent upside from current level.

Most brokerages having a ‘Buy’ rating believe that Vedant Fashions is organising the highly unorganised wedding wear industry. The company’s Q4 numbers were also impressive.

Also Read: MC Long View: Can Vedant Fashions truly be the next Titan?

The company recorded 22.7 percent year-on-year increase in net profit at Rs 108.9 crore for March FY23 quarter, backed by topline and operating performance. Revenue for the quarter grew by 15.3 percent YoY to Rs 341.6 crore. On the operating front, margin expanded 50 basis points to 49.1 percent.

However, Vedant Fashions operates in a highly competitive industry. Some fund managers believe the barriers to entry are low. Multiple shops in New Delhi, Mumbai, Calcutta, and Bengaluru sell similar designs at much cheaper prices.

Moreover, the stock is trading at an expensive valuation of 70x trailing twelve month price-to-earnings ration. Thus, Kotak Institutional Equities has a reduce rating on the stock.

From a technical perspective, the stock has a good support around Rs 1,180 levels on daily charts. “That’s where the ichimoku cloud is placed. The stock is currently trading below its 200-DEMA and once it closes above Rs 1,200, it can again pick up action,” said Gaurav Bissa, VP at Incred Equities.

The stock has a major hurdle at Rs 1,300 which implies the upside is likely to be capped, he said.

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