Home Market TCNS Clothing IPO to kick off on Wednesday; should you subscribe?

TCNS Clothing IPO to kick off on Wednesday; should you subscribe?


NEW DELHI: TCNS Clothing, the owner of Aurelia, W and Wishful brands, will kick off its Rs 1,125-crore initial share sale on Wednesday.

The issue of 15,714,038 shares will be offered in the Rs 714-716 price band. Bids could be made for a minimum lot of 20 shares and in its multiples thereafter.

The issue looks fully-priced, said analysts, adding that long-term investors can subscribe to the issue.

At the higher end of the price band of Rs 716, the issue is priced at P/E of 44.8 times (post dilution) on FY18 basis compared with industry average of 51.9 times.

"At this valuation, the issue seems fully priced. TCNS is positioning its brands to carve a niche for itself in terms of comfort, fit and concepts of products. The company is looking at capitalising on the opportunity in the Indian womens apparel industry and capture market share by strengthening its brand portfolio. Given the mature valuations and growth prospects, one can subscribe to the issue from a long-term perspective," said Centrum Broking.

The company retails its products through large format stores such as Pantaloons, Shoppers Stop and Lifestyle, among others.

Overall, it covers 1,469 outlets across 203 cities in 29 states and sells products through online retailers – Amazon, Jabong and Myntra — and its own website.

Ambit Capital noted that TCNS improved recall among youth aged 25-35 years and trebled its own-store network since FY13 at a time when peers were stumbling.

But the brokerage believes that investors must consider a question: Will the high gross margin of 63 per cent sustain despite own stores drawing only 30 per cent of revenue?

"A price differential of up to 60 per cent invites competition from value fashion players and new entrants, which can play truant; a case in point being Madura, a premium offering of ABFRL, which took gradual price hikes until FY16," it said.

Choice Broking is expecting this firm to report 20.5 per cent jump in FY19 sales at Rs 1,015.34 crore and an EPS growth of 11.3 per cent at Rs 17.8 per share.

The brokerage termed valuations as "demanding". The brokerage did not compare Page Industries as a peer to TCNS and suggested that peer average ex-Page is 38.8 times.

"With respect to FY18E and FY19E EPS too, it is asking a premium valuation to its peers. Thus, considering its short financial history and premium valuation, we are assigning an AVOID rating to the issue," it said.

Valuations look a bit stretched, said Hem Securities. But given the portfolio of established brands, widespread distribution network and presence across a variety of retail channels, the brokerage has a 'Long term subscribe' rating on the issue.

The offer will constitute up to 25.63 per cent of the post-offer paid-up equity share capital of the company.

This is an offer for sale (OFS) where promoters Onkar Singh Pasricha and Arvinder Singh Pasricha and other existing shareholders such as Anant Kumar Daga, Vijay Kumar Misra and Mit Chand will put their shares on the block.

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