Published on 24/07/2020 10:00:19 AM | Source: ICICI Securities Ltd

Buy TCNS Clothing Company Pvt Ltd For Target Rs.393 - ICICI Securities

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Gradual re-start with focus on preserving cash

Key takeaways from TCNS Clothing (TCNSBR) Q4FY20 result: 1) Nearly 2/3rd point of sales across channels are operational now; 2) lower footfall but higher conversion and transaction value; 3) B2C sales and online sales are currently tracking at ~40% and 100%+ of pre-Covid levels respectively; 4) focus on cost reduction through waiver/ concession in rental cost, rationalising unsustainable stores, curtailing discretionary / marketing / employee spends; 5) preserving cash through rationalising capex and reducing working capital and 6) net cash stood strong at +Rs1.5bn as of FY20-end. Factoring-in higher impact due to extended Covid-19 lockdown, we reduce our FY21E EPS by 30%. We maintain our FY2

* Revenue declined 25% YoY to Rs2.2bn (I-Sec: Rs2.6bn) as footfalls sharply declined in first half of Mar with business almost at standstill from mid-Mar onwards owing to Covid-19 outbreak. In B2C sales, TCNSBR registered SSSG of 4%+ in Jan & Feb which sharply declined 57% in Mar. The company was unable to execute confirmed orders worth Rs440mn in B2B segment (online, MBO and channel partners). Accordingly, TCNSBR lost total revenues of Rs1.03bn (Rs590mn in B2C and Rs440mn in B2B sales) in Q4FY20, as per management estimates.

* Online and MBO channel saw revenue decline of 52% YoY and 45% YoY respectively, followed by EBOs and LFS with a decline of 23% YoY and 14% YoY respectively. Aurelia registered 31% YoY decline, followed by W and Wishful with revenue decline of 25% YoY and 22% YoY respectively in Q4FY20. TCNSBR added 54 EBOs, 321 LFS doors; while MBO counters have reduced by 314 in FY20.

* TCNSBR registered pre Ind-AS 116 EBITDA loss of Rs324mn, significantly below our / consensus estimates owing to lower sales and gross margins, poor operating leverage and additional provisions. Gross margin declined 430bps YoY to 57.9%. Management estimates Rs590mn contribution loss on potential sales of Rs1.03bn, while additional Rs130mn provisions were made for store closures/ impairment, bad debts and additional dormancy on unsold inventory. FCF generation stood at Rs61mn post OCF (before working capital) Rs851mn which was utilised to fund working capital (which increased by 15 days YoY to 122 days due to increase in inventories) of Rs475mn and capex of Rs315mn in FY20.

* Gradual re-start after lockdown relaxation: Nearly 375 EBOs (63% of EBOs), ~1,300 LFS doors (67% of LFS doors) and 2/3rd MBOs counters are gradually operational from mid-May’20. B2C sales and online sales currently are tracking at ~40% and 100%+ of pre-Covid levels. Management focus is on preserving cash through cost reduction, rationalising capex and optimising working capital.


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