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Brand strength, fair pricing make TCNS a long-term buy

The company has shared the financials only for the last three fiscals.

, ET Bureau|
Last Updated: Jul 18, 2018, 12.32 PM IST|Original: Jul 18, 2018, 08.28 AM IST
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TCNS Clothing IPO kicks off: Here's everything you need to know
TCNS Clothing IPO kicks off: Here's everything you need to know
ET Intelligence Group: Long-term investors may apply for the upcoming IPO of TCNS Clothing. The company’s unique positioning in the less crowded women’s wear segment, with dominant brands such as ‘W’, ‘Aurelia’ and ‘Wishful’, may attract strong interest from institutions. In the choppy markets, funds are increasingly finding more comfort with consumer companies that offer high growth visibility.

The Rs 1,125-crore IPO will be an offer for sale where the promoters, private equity investors TA Associates and employees will be offloading their shares partially. Their holdings currently are 43.7 per cent, 40.7 per cent and 15.6 per cent, respectively.

BCCL
TCNS snip 1

BUSINESS
TCNS manufactures, markets and retails a portfolio of women’s branded apparel across brands ‘W’, ‘Aurelia’ and ‘Wishful’. ‘W’, the fusion brand, merges Indian and western sensibilities, and accounts for 58 per cent of the revenue and has grown at 23.4 per cent in the last two years. ‘Aurelia’, which has more contemporary designs, accounts for 33.7 per cent of revenues and has grown at 48 per cent, while ‘Wishful’, a premium occasion wear brand, accounts for 8.6 per cent and has grown at 40 per cent. It is one of the few players in the women’s apparels space with a pan-India presence and sells its products through multiple distribution channels — 465 exclusive brand outlets, 1,469 large format stores and 1,522 multi-brand outlets. It also sells online.

FINANCIALS
The company has shared the financials only for the last three fiscals. From FY16 to FY18, revenues have jumped 72 per cent to Rs 842 crore, EBIDTA (after adjusting for non-cash ESOP expenses) by 109 per cent to Rs 184 crore and adjusted net profit by 135 per cent to Rs 113 crore. Operating or EBIDTA margin for FY18 was 22 per cent. The clothing company had no meaningful debt in the end of FY18 and generated a return on equity of 26 per cent and return on capital employed of 38 per cent.

VALUATIONS
At the upper price band of Rs 716, the company is demanding a price to adjusted FY18 earnings multiple of about 40 times. This appears optically high but factoring in the future growth based on past performance and comparing with peers it appears fair (see table). Besides, with a play on the rising spend by self-earning women, TCNS is likely to command a premium.
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