TCNS Clothing IPO Review (May apply)

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Review By Dilip Davda on July 11, 2018

TCNS Clothing Co. Ltd. (TCNS) is India's one of the leading women's branded apparel company in terms of total number of exclusive brand outlets as of May 2018 (according to Technopak). It designs, manufactures, markets and retails a wide portfolio of women's branded apparel across multiple brands across India and through multiple distribution channels. As of March 31, 2018, TCNS sold its products through 465 exclusive brand outlets, 1,469 large format store outlets and 1,522 multi-brand outlets, located in 31 states and union territories in India. It also sold products through six exclusive brand outlets in Nepal, Mauritius and Sri Lanka. In addition, TCNS sold its products through own website and online retailers.

Company's product portfolio includes top-wear, bottom-wear, drapes, combination-sets and accessories that cater to a wide variety of the wardrobe requirements of the Indian woman, including every-day wear, casual wear, work wear and occasion wear. TCNS sells its products under three brands i.e. 'W', 'Aurelia' and 'Wishful'. The company operates with capital efficiency and scalable business model. It is a debt free company and having asset light business model. It has long standing relationship with suppliers and job workers.

For listing gains and unlocking value for stakeholders, TCNS is coming out with a maiden IPO of 15714038 equity shares of Rs. 2 each via book building route. It is an offer for sale and price band is fixed at Rs. 714-716. Company hopes to mobilize Rs. 1121.98-1125.13 cr. based on lower and upper price bands. Issue opens for subscription on 18.07.18 and will close on 20.07.18. Minimum application is to be made for 20 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE/NSE. Issue constitutes 25.63% of the post issue paid up capital of the company. Being secondary offer, its post issue equity remains at Rs. 12.26 cr. Having issued initial equity at par, it raised further equity in the price range of Rs. 4.36 to Rs. 373.26 per share (on the basis of FV of Rs. 2 per share – between March 2004 and June 2018). BRLM's to this issue are Kotak Mahindra Capital Co. Ltd. and Citigroup Global Markets India Pvt. Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Average cost of acquisition of shares by the promoters is Rs. 13.47 and Rs. 30.53 per share. Average cost of acquisition of shares by selling shareholders is in the range of Rs. 2 to Rs. 373.26 per share.

On performance front, for last three fiscals, TCNS has posted turnover/net profits of Rs. 488.14 cr. / Rs. – (41.50) cr. (on proforma basis) (FY16), Rs. 712.97 cr. / Rs. 15.80 cr. (FY17) and Rs. 849.16 cr. / Rs. 98.10 cr. (FY18). Its employees benefit expenses have come down drastically from Rs. 157.62 cr. (FY16) to Rs. 123.61 cr. (FY18). For last three fiscals, although it has posted CAGR of 32% in revenue from operations and 57% CAGR in adjusted PAT, TCNS has posted an average EPS of Rs. 7.23 and an average RoNW of – (1.08%). Issue is priced at a P/BV of 9.17 on the basis of its NAV of Rs. 76.54 as on 31.03.18. If we take latest earnings and attribute it on current paid up equity, then asking price is at a P/E of around 44 plus against industry composite of 68. As per offer documents, it has shown Page Ind., Aditya Birla Fashion, Future Lifestyle and Kewal Kiran as its listed peers that are currently trading at a P/E of around 92, 91, 61 and 23 (as on 11.07.18). However, they are not strictly comparable on an apple to apple basis.

On BRLM's front, two merchant bankers associated with this offer have handled 29 issues in the past three financial years, out of which 10 issues closed below the issue price on listing date.

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