Analysis & Review by Pawan, IIM Ahmedabad
TCNS is a women’s branded apparel company and is mostly into Ethnic/Fusion Wear. They operate under three brands, W, Aurelia & Wishful W. Now, if you are a woman, you have probably heard of these brands. If you are not, try a small experiment. Find a lady near you and ask her about W, Aurelia and Wishful. If you are lucky, she will offer you deep insights about these brands because TCNS isn’t a small time company. It’s a company that houses brands with significant brand equity in the apparel industry and has a board run by a professional team backed by a Marquee Private Equity Investor (TA Associates/Wagner).
They operate their distribution through four different channels:
In terms of total exclusive outlets, they are the leading branded women’s apparel company in India. However, they do not manufacture their own clothes. Instead, they source their fabric from multiple suppliers across India and outsource their manufacturing to Job workers mostly located in the NCR.
The promoters Mr. Onkar Singh Pasricha and Mr. Arvinder Singh Pasricha and the Managing Director Mr. Anant Kumar Daga have most definitely created something special here. But will it continue to be special. We are going to tell you TCNS’s story through quotes we picked from the DRHP.
Revenues have gone from 486 Crores (FY 2015-16) to 710 Crores (FY 2016-17). During the same period, the cost of materials went from 143 Crores (29% of Total Income) to 180 Crores (25% of total income).
Due to economies of scale, the company managed to source their raw material at cheaper rates and this has helped them improve their profitability.
However, it must also be noted that the company made losses during the Financial Year 2015-16 due to a sharp rise in employee benefit expense, after issuing ESOP’s (Employee Stock Ownership Plan) to retain top talent (The company states that it has had no attrition within the professional management team in the past 5 years). Since then however, the company has posted solid numbers. During FY 2017-18, the company made 842 Crores in Revenue and 97 Crore in PAT and is looking to expand in a big way. Also, the company has very little debt and that’s always a plus.
2. “We are going to add 75-80 new stores each year”
The growth plan is quite clear. The company wants to grow by expanding into new outlets i.e. by increasing total points of sale. However, there is an interesting trend here in that “same store sales growth” has been declining.
*Total Points of Sale includes exclusive stores, large format stores, multi-brand retail stores and International Outlets
We are not going to bother with the big numbers here. However, it is quite evident that the market for Branded Ethic Wear and Women’s Apparel is bound to grow as consumer spending in India increases. Here is the one statement we thought was relevant to the discussion.
“The branded Ethnic wear market, valued at US$ 1.5 billion for Fiscal 2017, is projected to grow at a CAGR of approximately 30% till Fiscal 2020 and brands like Aurelia, W, Biba and Global Desi who accounted for 39 % of the Organized Ethnic Apparel Market are expected to increase their market dominance to account for 46% of the Apparel Market”
So the agency that ran the study thinks the top line is expected to grow at a healthy rate. But they also foresee threats to the brand play, mainly from unbranded players and branded men’s apparel companies shifting their focus towards women’s ethnic wear.
The company says that managing their inventory will help them effectively prevent stock shortfall and deal with unsold stock, while reducing their debtor days ( average number of days required for a company to receive payment from its customers), will improve their cash flow cycle and enable them to redeploy their working capital in an efficient manner. Interestingly, this number, average debtor days, is increasing.
As of March 2018, it took them 60 days to collect payments, while in 2016, it took them only 48 days. On the other hand, Days Payable Outstanding has been decreasing. Days payable outstanding measures the company's average payable period i.e. how long it takes a company to pay its suppliers. From 63 days in 2016, to 49 days in 2018, the company is keeping its suppliers happy by sacrificing its own financial interests.
So none of the proceeds will go to the company. Promoter holding will go down from 43% to about 32% after listing. The Marquee PE investor Wagner will divest about 11% of its stake taking its holding from 40% to about 29%. In addition, current and past members of the top management team will also divest small portions of their stake, most notably Mr. Anant Kumar Daga, the Managing Director.
Overall, the company has a lot going for it. It has definitely built a niche (Ethnic Wear) for itself in an extremely competitive market and that in itself is an accomplishment.
However the company is hoping to raise 1,125 Crores (upper band of Rs. 716) and that price translates to a PE of about 44. It’s fully priced. If you believe in the larger Indian growth story and TCNS, maybe this one is for you. But if you are unsure about the valuations, maybe get a second opinion.
In any case, we wish the company all the best in its future endeavour.