TCNS Clothing - Q1FY21 Company Update - ICICI Securities

As expected, Q1FY21 was a washout quarter for TCNS Clothing marred by store closures for a major period during the quarter. The main emphasis in Q1 was on sharp rationalisation of operating overhead. Revenue for the quarter fell 88% YoY to Rs. 32.4 crore. For offline sales, normalcy levels reached 40% of pre-Covid sales with strong traction in e-commerce channel (1.3x of pre-Covid levels). Provision for dormancy on unsold inventory (~Rs. 3 crore) and change in channel mix (higher share of e-commerce) led gross margins to contract to 50.7% vs. 67.2% in Q1FY20. In a bid to minimise cash burn, the company rationalised operating overheads through a reduction in rental expenses (secured full year savings of ~25% over last year with Rs. 19 crore savings accounted in Q1) and employee expenses down 12% YoY to Rs. 33.0 crore (full benefit to flow in Q2). Hence, EBITDA losses were curtailed, to a certain extent, to Rs. 43.0 crore. PBT losses were at Rs. 60.4 crore with net loss at Rs. 45.3 crore (tax write back: Rs. 15.1 crore). TCNS continues to have a healthy b/s with debt free status and Rs. 125.0 crore cash and investments.

Valuation & Outlook

The key focus areas for remainder of the year is on optimising working capital to release cash and minimise cash burn with stringent cost control measures. Given the nature of the products (functional fashion), TCNS will be redeploying SS20 merchandise in the next two seasons, significantly reducing fresh buys. As per the company, current RM inventory (fabrics) is sufficient for remainder of the year, while it will be reusing certain fabrics to create capsule ranges (cotton range). On the cost front, TCNS has secured 20%+ fixed cost reduction for the year through rationalising unviable stores, staff overheads (20%+ savings), rental waivers, curbing discretionary spending (ad-spends). We expect certain reduction in expenses to be structural in nature. Being a net cash positive company (Rs. 125.0 crore cash & investment, unutilised bank limit), TCNS would be better positioned to tide over the current turbulent market scenario vs. small peers. On a moderate base of FY20, we bake in 28% earnings CAGR in FY20-22E. We reiterate BUY on the stock with a revised TP of Rs. 410 (25x FY22E EPS, previous TP: Rs. 445).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TCNS_CoUpdate_Aug20.pdf

Shares of TCNS Clothing Co. Ltd was last trading in BSE at Rs.352.5 as compared to the previous close of Rs. 349.5. The total number of shares traded during the day was 5515 in over 748 trades.

The stock hit an intraday high of Rs. 356.85 and intraday low of 339.25. The net turnover during the day was Rs. 1925791.

Source : Equity Bulls

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