TCNS Clothing Co Ltd IPO Note (Avoid)

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Review By Rudra Shares & Stock Brokers Ltd on July 17, 2018

TCNS has a scalable business model, which relies on the strength of its design process, distribution & retail network and long standing relationships with its vendors.

The company enters into leases or franchise agreements for its exclusive brand outlets which requires less capital expenditure compared to acquisition of real estate or properties for setting up new outlets.

Further, manufacturing products through agreements with job workers allows it to increase production capacity as required and without incurring additional capital expenditure.

But taking into consideration, increasing trade receivables, high volume of inventories of finished goods and work-in-progress, cut throat competition in the industry, are the biggest threat to this company & on the upper price band of Rs716 with EPS of Rs 16.1 for FY18, P/E works out at 44.4x.

With premium valuation at current level fails to infuse optimism in company, hence we recommend to Avoid the issue.

THE OFFER

• Issue Open : 18 July 2018 to 20 July 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 15,714,038 Equity Shares @ 2 aggregating up to Rs 13 cr
• Face Value: Rs 2 Per Equity Share
• Issue Price: Rs 714 – Rs 716 Per Equity Share
• Market Lot: 20 Shares
• Minimum Order Quantity: 20 Shares
• Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company is set forth below:

Authorized Share Capital

180,000,000 Equity Shares @2 Aggregate value Rs 360,000,000

20,000,000 Preference Shares Aggregate value Rs 20,000,000

Issued, subscribed and paid up capital before the Issue

61,318,124 Equity Shares @2 Aggregate value Rs 122,636,248

Present Issue

15,714,038 Equity Shares @ 2 aggregating up to Rs 1125.13cr

OBJECT OF THE OFFER

The objects of the Offer are

• To carry out the Offer for Sale by Selling Shareholders.
• To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

Further, Company expects that the listing of the Equity Shares will enhance visibility and brand image and provide liquidity to Shareholders.

COMPANY OVERVIEW

TCNS Clothing is India's leading women's branded apparel company in terms of total number of exclusive brand outlets. They design, manufacture, market and retail a wide portfolio of women's branded apparel across multiple brands.

Company sells their products across India and through multiple distribution channels. Company sells 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.

As of March 31, 2018, Company also sells their products through 6 exclusive brand outlets in Nepal, Mauritius and Sri Lanka. In addition, they also sell their products through their own website and online retailers.

Company retails their products through large format stores, such as Pantaloons, Shoppers Stop and Lifestyle, online retailers like Myntra, Jabong and Amazon, among others, covering 1,469 outlets across 203 cities in 29 states in India as well as approximately 1,522 multi-brand outlets including through 21 distributors

BRAND PORTFOLIO

Company has expanded their brand portfolio to three brands, each positioned to cater to well-defined needs of their respective target consumers:

W (Premium fusion wear Brand) :

W is a premium fusion wear brand, which merges Indian and western sensibilities with an emphasis on distinctive design and styling.

As of March 31, 2018, W had 281 exclusive brand outlets and 717 large format store outlets located across 157 cities in India and five outlets outside India.

Revenue from sales of products under brand W grew at a CAGR of 23.43% during Fiscals 2016 to 2018 and accounted for Rs 485.63cr, or 57.65% of revenue from operations for the Fiscal 2018.

Aurelia (Contemporary Ethnic wear Brand) :

Aurelia is a contemporary ethnic wear brand targeted at women looking for great design, fit and quality for their casual and work wear requirements.

As of March 31, 2018, Aurelia had 183 exclusive brand outlets and 752 large format store outlets located across 184 cities in India and one outlet outside India.

Revenue from sales of products under brand Aurelia grew at a CAGR of 47.80% during Fiscals 2016 to 2018 and accounted for Rs 283.71cr, or 33.68% of revenue from operations, for the Fiscal 2018.

Wishful (Premium occasion wear Brand) :

Wishful is a premium occasion wear brand, with elegant designs catering to women's apparel requirements for evening wear and occasions such as weddings, events and festivals, company have been leveraging its W store network for selling Wishful products, however company has recently launched its first exclusive brand outlet for Wishful, in September 2017.

Revenue from sales of products under brand Wishful grew at a CAGR of 39.73% during Fiscals 2016 to 2018 and accounted for Rs 73.08cr, or 8.68% of total revenue from operations, for the Fiscal 2018.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Expand physical retail and online presence.
• Leverage marketing initiatives to increase brand recognition.
• Expand and strengthen brand portfolio.
• Increase the range of products under existing brands.
• Improve operational efficiencies

STRENGTHS

• Innovative and institutionalized product design process.
• Widespread distribution network and presence across a variety of retail channels.
• Longstanding relationships with suppliers and job workers.
• Capital efficient and scalable business model.
• Experienced, aligned and professional management team with strong organizational culture.
• Leading Women's Apparel company in India with a Portfolio of Established brands.
• Strongly positioned to leverage growth in the women's apparel industry in India.

FINANCIAL PERFORMANCE

Total Revenue for the FY 2016, FY 2017 and FY 2018 stood at Rs 488.1 crores, Rs 712.9 crores and Rs 849.1 crores, respectively.

Total income grew at a CAGR of 31.89% between Fiscals 2016 and 2018.

PBT stood at Rs (13.6) crores, Rs 62.3 crores and Rs 144.8 crores, for the FY 2016, FY 2017 and FY 2018 respectively.

PAT stood at Rs (41.4) crores, Rs 15.7 crores and Rs 98.0 crores, for the FY 2016, FY 2017 and FY 2018 respectively.

RISK FOR THE BUSINESS

• Business and prospects may be adversely affected if company is unable to maintain and grow the image of brands.
• Company's inability to effectively manage or expand retail network may have an adverse effect on business.
• Delay of slower expansion in the retail network.
• Poor business from the existing brands.
• Unexpected rise in the operating expenses.
• Unfavorable working capital cycle.
• Increase in competition