Q3FY21 Company Update - TCNS Clothing - ICICI Direct

Driven by festive season demand, TCNS Clothing reported strong QoQ growth with revenue recovery rate reaching 72% in Q3FY21 vs. 45% in Q2FY21. The recovery rate is broadly in line with industry revenue recovery rate (fashion retailers). Revenue for Q3FY21 fell 28% YoY to Rs. 237.9 crore (up 65% QoQ). Non-metro cities continue to recover at a swift pace with Tier I cities reaching 70% and Tier II, III cites recovering at ~80% of pre-Covid levels. Stores in metro cites are lagging behind with 55% recovery rate. Gross margins continued to stay under pressure (down 670 bps YoY to 61%) mainly due to change in channel mix (higher online sales) and provision towards inventory dormancy (~400 bps). Sharp rationalisation of operating overheads, recovery in sales led TCNS to report EBITDA of Rs. 38.5 crore (down 43% YoY) vs. EBITDA loss of Rs. 16.3 crore in Q2FY21. PAT for Q3 was at Rs. 12.7 crore (down 77% YoY) vs. net loss of Rs. 27.6 crore in Q2FY21.

Valuation & Outlook

TCNS has redeployed SS20 merchandise to SS21 resulting in inventory reduction and working capital release. Subsequently, cash reserves increased from Rs. 110 crore in Q2FY21 to Rs. 155 crore in Q3FY21. It has secured significant fixed cost reduction for the year through rationalising unviable stores, rental waivers (secured full year saving of ~35%), rationalising staff overheads (annual salary savings at ~20%) and curbing discretionary spending (ad-spends). We expect certain cost saving initiatives to have long-term positive impact post pandemic also. Accelerated store addition plans, coupled with diversification into newer categories (footwear and Aurelia Girls) are expected to fuel growth, going forward. Being a net cash positive company, TCNS would be better positioned to tide over the current turbulent market scenario. We broadly maintain our estimates and expect TCNS to generate healthy RoIC of ~25% by FY23E. We reiterate BUY on the stock with an unchanged target price of Rs. 540 (29.0x FY23E EPS).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TCNS_CoUpdate_Feb21.pdf

Shares of TCNS Clothing Co. Ltd was last trading in BSE at Rs.404.9 as compared to the previous close of Rs. 402.55. The total number of shares traded during the day was 3554 in over 343 trades.

The stock hit an intraday high of Rs. 407.95 and intraday low of 397.75. The net turnover during the day was Rs. 1435637.

Source : Equity Bulls

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