TCNS Clothing IPO: Here’s All You Need To Know

TCNS Clothing Co. Ltd. will launch its three-day initial public offering today as the promoters look to pare part of their stake.

The owner of brands like ‘W’, ‘Aurelia’ and ‘Wishful’ is looking to raise about Rs 1,125 crore by selling 1.6 crore equity shares at Rs 714-716 apiece.

Four promoters, the current managing director and an investor Wagner Ltd. will offload stakes through the maiden offer, which is an offer for sale. After the share sale, the promoter holding will fall to 32.4 percent from 43.7 percent. The promoters and the current managing director will gain nearly 11 times and Wagner two times its investment in the company.

Business

TCNS Clothing is a designer, manufacturer, marketer and retailer of women’s branded apparel. The revenue of its three brands—W, Aurelia and Wishful—grew at an annualised rate of 23.4 percent, 47.8 percent and 39.7 percent, respectively, in the last three financial years. The garment maker generates most of its revenue from the brand ‘W’.

The company sells products through 465 exclusive brand outlets, 1,469 large format stores and 1,522 multi-brand outlets located in 31 states and union territories. It has six exclusive brand outlets in Nepal, Mauritius and Sri Lanka.

TCNS Clothing retails products through large format stores such as Pantaloons, Shoppers Stop and Lifestyle, through online retailers like Myntra, Jabong and Amazon, among others, and through their websites—wforwoman.com and shopforaurelia.com.

Financials

The company’s net worth as of March 2018 stood at Rs 431 crore, translating to a book value of Rs 70 a share.

TCNS Clothing’s revenue has been growing at an annualised rate of 49.1 percent over financial years 2014-2018. Net profit during the period grew 83 percent annually. For the financial year 2017-18, the net profit stood at Rs 98 crore due to lower employee cost and tax expense and higher other income.

The earnings before interest, tax and depreciation and amortisation had a compounded annual growth rate of 63 percent, while Ebitda margin averaged around 11.8 percent in the last five financial years.

Peers

Kewal Kiran Clothing Ltd. and Future Lifestyle Fashions Ltd. are among the few listed peers. While TCNS is only into women’s clothing, others have a diversified portfolio.

TCNS Clothing has a higher growth rate than peers, helped by lower employee cost and tax expenses and higher other income.

It is a debt-free company with a total cash balance of Rs 52 crore. It has consistently generated cash flows from operations in the last five years but never paid any dividend so far. The company book value per share is lower compared to Kewal Kiran and Future Lifestyle.

The apparel maker’s return ratios are better compared to its peers for financial year 2017-18, according to data compiled by BloombergQuint.

Valuations

The earnings per share for financial year 2017-18 is Rs 16. The price-to-earnings multiple stands at 44.8 at the upper end of the price band, according to BloombergQuint’s calculations.

Analysts’ View

Prabhudas Lilladher

• Established brand with strong positioning.
• Designing, supply chain and scale are key strengths.
• Steady growth, debt-free with healthy return on equity and return on capital employed.

Centrum Wealth

• The issue seems fully priced.
• Expects growth prospects over long term.
• Indian women’s apparel market shifting from unbranded to branded products.

Choice Broking

• Highly competitive market characterised by several unorganised players.
• Current gross margin is not sustainable in future.
• Valuations at a premium to peers.

Angel Broking

• Limited financial history.
• Singular focus on ethnic woman apparel.
• Demanding valuations.