IPO NOTE. TCNS Clothing Co Ltd 13 th July Rating: Issue Summary: Face Value (Rs) 2

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1 IPO NOTE TCNS Clothing Co Ltd 13 th July 2018 Rating: Issue Summary: Price Band (Rs) Face Value (Rs) 2 Market Lot /Share 20 shares Opens 18 th -July, 2018 Closes 20 th -July, Issue Size (Rs) crore Fresh issue Offer for sale Pre and Postoffer equity Listing Issue Break Up: NIL 15,714,038 shares 61,318,124 shares BSE and NSE QIB Portion 50% NIB Portion 15% Retail Portion 35% Book Running Lead Managers: Kotak Mahindra Capital, Citigroup Global Markets Registrar Karvy Computershare Pvt. Ltd. TCNS design, manufacture, market and retail a wide portfolio of women s branded apparel across multiple brands and company has portfolio of 3 brands viz. W is a premium fusion wear brand, W had 281 Exclusive Brand Outlets (EBO) and 717 Large Format Store Outlets. Aurelia is a contemporary ethnic wear brand, Aurelia had 183 EBOs and 752 Large Format Store Outlets. Wishful is a premium occasion wear brand, recently 1st EBO in September TCNS Clothing Co Ltd ( TCNS Clothing ) is India s Leading Women s Branded Apparel Company in terms of total number of Exclusive Brand Outlets ( EBOs ) as of May 2018, according to Technopak. The company design, manufacture, market and retail a wide portfolio of women s branded apparel across multiple brands. The company sells their products across India and through multiple distribution channels. As of March 31, 2018, they sold their products through 465 EBOs, 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 their products through 6 EBOs in Nepal, Mauritius and Sri Lanka. In addition, they sold their products through their own website and online retailers. Total income was 849cr for the fiscal 2018, and total income grew at a CAGR of 31.89% between FY16-FY18. Net income for the year and the adjusted EBITDA was 98cr and 183cr, respectively, for the fiscal FY18. Particulars (In Cr) FY18 FY17 Revenue PAT PAT Margin 11.5% 2.2% EPS CFO Net Worth ROE 22.7% 5.5% Source: Ace Equity, Arihant Research 1

2 Overview of Indian Apparel market: Out of the total apparel market in India, Indian apparel accounts for approximately 30% or US$ billion (Fiscal 2017) and the balance 70% of the market is made up of western apparel. The women s wear portion of Indian apparel accounts for approximately a 90% share of the overall Indian apparel market in India. This implies that the women s Indian (and Ethnic) apparel is the foundation for Indian (and Ethnic) apparel in India. The organized retailing share of apparel has increased from 14% in Fiscal 2007 to 20% in Fiscal 2012 and 24% in Fiscal In the next three years (between Fiscals 2017 to 2020), the CAGR of organized retail at 21% is going to increase faster than the CAGR of branded apparel at approximately 19%. 2

3 The following chart sets forth women s apparel brand segmentation based on product offering: The Ethnic wear segment in India tends to be dominated by certain large national players like TCNS (W, Aurelia and Wishful), BIBA, Global Desi and Fabindia and a few regional players like Neeru s and Soch. Brand Year of Inception Number of EBOs Focus Geography W Pan India Aurelia Pan India Wishful Pan India BIBA North, South and West Global Desi North & West Fabindia Pan India Soch South 3

4 Objects of the offer: Sale of up to 15,714,038 Equity Shares by the Shareholders. Boost the visibility and brand image of the company. Provide a public market for the shares of the company. Promoters and Promoter Group: Onkar Singh Pasricha is the Chairman, Executive Director and one of the Promoter of the company. He is on the Board since inception and has more than 40 years of experience in the apparel industry. Anant Kumar Daga is the Managing Director of the company. He joined the company as a Chief Executive Officer with effect from March 16, 2010 and has been on the Board since September 7, Prior to joining the company, Anant Kumar Daga has worked with Reebok, India as director (sales) and with ICICI Bank. Competitive Strengths: Strongly positioned to leverage growth in the women s apparel industry in India. Leading women s apparel company in India with a portfolio of established brands. Innovative and institutionalized product design process. Widespread distribution network and presence across a variety of retail channels. Longstanding relationships with suppliers and job workers. Strategies: Expand physical retail and online presence. Leverage marketing initiatives to increase brand recognition. To Increase the range of products under existing brand. Peer Comparison: (In Cr) Name of the company Face Value Revenue EPS P/E ROE TCNS Clothing % Co. Limited Page Industries % ABFRL % Future Lifestyle % Kewal Kiran Clothing Limited % 4

5 Valuation: TCNS 62% gross margin is the key to its high EBITDA margin of 21% and RoE of 22.74%, whereas profit margins are in the range of 11-12%. At upper price band of Rs. 716, TCNS business is valued at a P/E of 46.61x to its FY18 EPS of Rs We have a 3 star rating on the issue. 5

6 Arihant Research Desk E. T Head Office #1011, Solitaire Corporate park, Building No. 10, 1 st Floor, Andheri Ghatkopar Link Road Chakala, Andheri (E) Mumbai Tel: (91-22) Fax: (91-22) Registered Office Arihant House E-5 RatlamKothi Indore , (M.P.) Tel: (91-731) Fax: (91-731) Research Analyst Registration No. Contact Website Id INH SMS: Arihant to research@arihantcapital.com Disclaimer: This document has been prepared by Arihant Capital Markets Ltd. This document does not constitute an offer or solicitation for the purchase and sale of any financial instrument by Arihant. This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst meticulous care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the analyst nor any employee of our company is in any way is responsible for its contents and nor is its accuracy or completeness guaranteed. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Arihant may trade in investments, which are the subject of this document or in related investments and may have acted upon or used the information contained in this document or the research or the analysis on which it is based, before its publication. This is just a suggestion and Arihant will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Affiliates of Arihant may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. No matter contained in this document may be reproduced or copied without the consent of the firm. ArihantCapital Markets Ltd. 6