TCNS Clothing - Q4FY21 - Focus back to growth - ICICI Securities

Key takeaways from TCNS Clothing's (TCNSBR) Q4FY21 earnings: 1) Revenue was up 1% YoY (in-line with expectations) and was impacted from mid-Mar'21 due to lockdowns owing to resurgence in covid cases; 2) LFS revenue remained flat YoY, while EBO & MBO revenue declined 23% YoY and 60% YoY respectively owing to channel rationalisation; online revenue grew 2.5x YoY on a low base in Q4FY21; 3) company is targeting net addition of +60 EBOs in FY22; 30 EBOs already signed up and likely to open in H1FY22; and 4) cost rationalisation and working capital release led to Rs110mn cash accretion to Rs1.82bn during FY21. Factoring-in the impact of recent lockdowns, we reduce our FY22E EBITDA though we maintain it for FY23E. Maintain ADD with revised DCF-based target price of Rs630/sh (earlier Rs430/sh) on better cash flows and half-yearly rollover to Mar'23E. Key risk: lower discretionary spends & increasing online competition.

- Revenues were up 1% YoY to Rs2.2bn, while post Ind-AS 116 EBITDA including other income stood at Rs410mn vs Rs40mn in Q4FY20. W and Wishful revenues fell 2% YoY and 23% YoY respectively; while Aurelia revenue was up 11% YoY. Company closed 10 EBOs - 8 EBOs for W and 2 EBOs for Aurelia in Q4FY21. Post EoSS, recovery in mid-Feb-Mar'21 stood at 90-95% of normal levels in tier 2&3 cities while for tier 1 cities it stood at ~70%. As on date, 60% of offline network is operational with stipulated restrictions while supply chain is back to normalcy. Management stated it has completed rationalisation of MBOs and expects recovery from Q2FY22-end. B2C sales grew 7x YoY on low base and constituted 1/3rd of third party online sales. Share of full price sale in online channel increased from mid- single digits in FY20 to double digit in FY21.

- Reported gross margin remained broadly flat YoY at 57.5%. TCNSBR achieved 30%+ cost savings YoY in FY21 led by 45% savings in rent expenses, 23% savings in employee-related costs and 29% savings in overheads. Company is investing in automated inventory management system which is likely to reduce 10-15% inventory stocking at store level. Investment in integrated warehouse will result in more efficient direct-to-consumer delivery model and cost rationalisation over long term.

- TCNSBR is targeting to add net 60+ EBO stores (after accounting for ~15 usual store closures during the year) and addition of 200-250 LFS doors in FY22. Total capex planned for FY22 & FY23 stands at Rs250-300mn p.a. towards store additions (Rs150mn), warehouse integration (Rs80-100mn) and software for inventory management (Rs50mn).

- Net cash increased to Rs1.82bn from Rs1.71bn in FY20 on account of cost rationalisation, one-time income tax refund and working capital release. Management is targeting to reduce working capital days from 120 days to 105 days in short term and in double-digit days in the medium-term.

Shares of TCNS Clothing Co. Ltd was last trading in BSE at Rs.589.45 as compared to the previous close of Rs. 600.3. The total number of shares traded during the day was 25863 in over 1263 trades.

The stock hit an intraday high of Rs. 624.95 and intraday low of 580. The net turnover during the day was Rs. 15572990.

Source : Equity Bulls

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