TCNS Clothing - Company Update - ICICI Securities

Disruptions owing to store closures (from mid-March onwards) led to substantial contraction in revenues for TCNS Clothing in Q4FY20. Revenue for the quarter de-grew 25% YoY to Rs. 219.2 crore. In B2C sales, TCNS reported SSSG of 4%+ in January-February while in March SSSG contracted materially by 57% YoY. As per management estimates, the company was unable to execute confirmed B2B orders worth Rs. 44.0 crore and overall lost revenue worth Rs. 103.0 crore in Q4FY20. Given March is a full priced season sale, loss of sales negatively impacted gross margins. Furthermore, TCNS provided for dormancy on unsold inventory (2-2.5%). Hence, gross margins contracted 430 bps YoY to 57.9%. Given the fixed cost nature of the business, entire loss of gross profits in March flowed into EBITDA. Subsequently, the company posted EBITDA loss of Rs. 32.4 crore vs. EBITDA Rs. 40.0 crore in Q4FY19 (company estimates Rs. 59.0 crore contribution loss on potential sales, additional provision worth Rs. 13.0 crore towards store closures/impairment and bad debts. Going forward, its key focus is on preserving cash through cost rationalisation, curtailed capex and working capital optimisation. The company continues to have a healthy balance sheet with debt free status and Rs. 150.0 crore cash and investments.

Valuation & Outlook

We are positive on the long term outlook, considering the company's strong brand franchise and unlevered balance sheet. Being a net cash positive company (Rs. 150.0 crore cash & investment and unutilised bank limit of Rs. 35.0 crore), TCNS would be in a better position to tide over the current turbulent market scenario better than small peers. We cut our earnings estimates for FY21E, FY22E by 40%, 10%, respectively. Given the sharp earnings reduction in FY20E (EBITDA margins halved in FY20E to 7.8%), we bake in earnings CAGR of 34% in FY20-22E. We reiterate BUY on the stock with a target price of Rs. 445, valuing at 25x FY22E EPS of Rs. 17.8 (previous TP: Rs. 480).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TCNS_CoUpdate_Jun20.pdf

Shares of TCNS Clothing Co. Ltd was last trading in BSE at Rs.349 as compared to the previous close of Rs. 367.25. The total number of shares traded during the day was 2031 in over 173 trades.

The stock hit an intraday high of Rs. 371.35 and intraday low of 349. The net turnover during the day was Rs. 725196.

Source : Equity Bulls

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