TCNS Clothing IPO – Should you Invest or Avoid?
Delhi based TCNS Clothing IPO would open for subscription on 18th July, 2018. TCNS Clothing Limited is an India’s leading women’s branded apparel company. TCNS Clothing revenues grew at 49% CAGR in the last 5 years. Its margins grew at 82% in the last 5 years. Investors are worried as there are no good IPOs that came recently which can give good returns. What are positive factors in this IPO of TCNS Clothing Limited? What are the hidden factors in the IPO of TCNS Clothing? Should you invest in a TCNS Clothing Limited IPO or Avoid?
About TCNS Clothing Limited
They are India’s leading women’s branded apparel company in terms of total number of exclusive brand outlets as of May 2018, according to Technopak. they design, manufacture, market and retail a wide portfolio of women’s branded apparel across multiple brands. they sell company products across India and through multiple distribution channels. As of March 31, 2018, they sold company products through 465 exclusive brand outlets, 1,469 large format store outlets and 1,522 multi-brand outlets, located in 31 states and union territories in India. As of March 31, 2018, they also sold company products through six exclusive brand outlets in Nepal, Mauritius and Sri Lanka. In addition, they sold company products through company own website and online retailers.
If you don't have time to read the entire article, you can review our TNCS Clothing IPO Review Video here.
TCNS Clothing IPO Issue details
IPO opening date: 18-July-2018
IPO closure date: 20-July-2018
Face Value: Rs 2 per share
Issue price band: Rs 714 to Rs 716 per share
Issue size: Rs 1,125 Crores
IPO Lot size: 20 shares and 20 shares, there-off
Minimum investment: Rs 14,040 on higher price band
Leading Managers: Kotak Mahindra Capital and Citigroup Global Markets
Listing: BSE / NSE
Objects of the TCNS Clothing Limited IPO issue
The objects of the Offer are:
a) To achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the sale of up to 15,714,038 Equity Shares by the Selling Shareholders. The company expects that listing of the Equity Shares will enhance our visibility and brand image and provide liquidity to our shareholders. The listing will also provide a public market for the Equity Shares in India.
b) Company will not receive any proceeds from the Offer and all the proceeds will go to the Selling Shareholders, in proportion to the Equity Shares offered and sold by the respective Selling Shareholders in the Offer for Sale.
The Promoters of the Company are Mr. Onkar Singh Pasricha and Mr. Arvinder Singh Pasricha.
Company Financials (reinstated)
1) The company generated revenue of Rs 170.2 Crores for the year ended Mar-14 and Rs 849.1 Crores for the year ended Mar-18 indicating 49% CAGR growth in the last 5 years.
2) The company posted a profit of Rs 8.7 Crores for the year ended Mar-14 and profit of Rs 97.7 Crores for the year ended Mar-18 indicating a 82% growth of profits in the last 5 years.
3) Its FY18 basic EPS is Rs 16.12 and last 3 years average EPS is Rs 7.6.
What are the key strengths of TCNS Clothing Limited?
Here are the key strengths of the company.
1) Strongly positioned to leverage growth in the women’s apparel industry in India
2) Leading women’s apparel company in India with a portfolio of established brands
3) Innovative and institutionalized product design process
4) Widespread distribution network and presence across a variety of retail channels
5) Longstanding relationships with suppliers and job workers
6) Capital efficient and scalable business model
7) Experienced, aligned and professional management team with strong organizational culture.
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What are the Strategies of TCNS Clothing Ltd?
Here are the key strategies of the company.
1) Expand its physical retail and online presence
2) Leverage marketing initiatives to increase brand recognition
3) Expand and strengthen its brand portfolio
4) Increase the range of its products under existing brands
5) Improve operational efficiencies
Reasons to invest in TCNS Clothing IPO
1) Good Revenue growth of 49% CAGR in the last 5 years.
2) Good profit growth over 82% in the last 5 years. It earns around 11.5% margins on its revenues in FY18. However, company has incurred loss in FY2016.
Risk Factors / Reasons not to invest in TCNS Clothing IPO
1) If they are unable to anticipate and respond to changes in fashion trends and changing customer preferences in a timely and effective manner, the demand for company products may decline, which may have an adverse effect on company business, results of operations and prospects.
2) Company business and prospects may be adversely affected if they are unable to maintain and grow the image of company brands.
3) If they are unable to identify customer demand accurately and maintain an optimal level of inventory in company stores, company business, results of operations and financial condition may be adversely affected.
4) Company's inability to effectively manage or expand company retail network may have an adverse effect on company business, results of operations and financial condition.
5) Current locations of company exclusive brand outlets may become unattractive, and suitable new locations may not be available for a reasonable price, if at all.
6) They derive a significant portion of company revenues from sales at franchised exclusive brand outlets, large format stores, multi-brand outlets and through online retailers. Any failure to maintain relationships with such third parties could adversely affect company business, results of operations and financial condition.
7) They do not currently own any manufacturing facilities and engage job workers in manufacturing all company products. They may not be able to obtain sufficient quantities or desired quality of products from job workers in a timely manner or at acceptable prices, which may adversely affect company business, financial condition and results of operations.
8) Majority of company exclusive brand outlets and all company warehouses are utilized by us on a leasehold basis. If they are unable to comply with the terms of these leases, renew company agreements or enter into new agreements on favourable terms, or at all, company business, results of operations and financial condition may be adversely affected.
9) Company business is subject to seasonality. Lower revenues in the festive period of any Fiscal may adversely affect company business, financial condition, results of operations and prospects.
10) A significant portion of company revenues is derived from the sale of company products under company brand ‘W’ and any reduction in sales under this brand may adversely affect company revenues, business, results of operations and prospects.
11) There are outstanding legal proceedings and litigation against company company Promoters, company Directors and company Group Company. Any adverse outcome in any of these proceedings may adversely affect company profitability and reputation and may have an adverse effect on company results of operations and financial condition.
12) They have experienced negative cash flows in relation to company investing and financing activities in recent financial periods. Any operational negative cash flows in the future could adversely affect company results of operations and financial condition.
13) For complete risk factors of the IPO, please read the risk factors.
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Recommendation / Investment strategy – TCNS Clothing IPO
On FY2018 EPS of Rs 16.12 and on an upper price band of Rs 716, P/E works out to be 43x. On last 3 years average EPS of Rs 7.6, P/E works out to be 92x. Means company is asking for a higher price band Rs 716 where P/E would be in the range of 43x to 92x. There are listed peers like Aditya Birla Fashion and Retail which is trading at 97x P/E (Highest) and Kewal Kiran Clothing is trading at P/E of 25x and industry average is 67.8x, hence TNS Clothing IPO Price is fully priced.
The company posted revenue growth of 49% CAGR in the last 5 years. Its margins are also in improvement mode. Its issue price is fully priced. Considering all these positive factors investors can invest in this IPO for medium to long term of 4 to 6 years. Investors may or may not get listing gains.
Disclaimer: I do not have an interest in investing in this IPO and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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TCNS Clothing IPO – Should you Invest or Avoid