TCNS Clothing IPO opens today for subscription in the price band of INR 714 – 716 per share. In total, 15,714,038 shares will be sold by existing shareholders amounting to as much as INR1,125.13 crore. These shares are offered by private equity investor TA Associates and company promoters and thus, the company will not get any funds from the offer. Several brokerage houses have issued research notes on the IPO of the Delhi-based apparel maker. Here is a snapshot of TCNS Clothing IPO recommendations:
Hem Securities thinks the issue is good for long term while highlighting that valuations are stretched. “The co is bringing the issue at p/e multiple of approx. 45 on FY18 eps at price band of Rs 714-716/share. Co being leading women’s apparel company in India with a portfolio of established brands & widespread distribution network and presence across a variety of retail channels but valuations looks bit stretched at present level. Hence, we recommend “Long Term Subscribe” on issue,” said the brokerage house.
Long term is the call from ICICIdirect as the issue appears to factor-in the near-term growth prospects. “At the IPO upper price band of Rs 716, the stock is priced at P/E multiple of 44x and price/sales of 5x FY18. We believe the current valuation factors in the near term growth prospects. Hence, we believe one should subscribe with a long term horizon,” recommended the firm.
Prabhudas Lilladher has a positive view on the offer. “TCNS is looking at ~75 new EBO (Exclusive Brand outlets) additions/year which would enable 17% sales CAGR, 20% EBIDTA CAGR and 18.5% PAT CAGR (excluding ESOP provisions) over FY18-21. The stock is being offered at 33.7xFY18 EPS (Before ESOP Provisions) which offers scope for decent gains over the medium term given strong growth outlook. Recommend Subscribe,” noted analysts Amnish Aggarwa and Nishita Doshi in their research report, adding to positive TCNS Clothing IPO recommendations.
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Asit C Mehta believes the IPO is fairly priced and has recommended for long-term. “TCNS’ splendid revenue growth and pervasive presence place it well to benefit from the flourishing Indian women apparels market, outperforming the industry growth of 10 percent CAGR. At the upper price band of Rs 716, the asking price is at a P/E of 44X at FY18 EPS of Rs 16.12 making it fairly priced. We recommend to Subscribe the issue from a long-term perspective,” said the brokerage house.
TCNS Clothing IPO Recommendations: Neutral, Avoid also in the list
Angel Broking acknowledges the company’s early mover advantage and innovative designs but also warns that its above industry gross margins could be dented by value focused fashion retailers. “The company has posted excellent CAGR of 49%/83% in revenue/ PAT over FY2014-18 (although on a low base), driven by increase in its product offerings and retail stores. Gross margin have been excellent at 55-60% over the same period. However, its employees cost has been high over FY2016-17 owing to the ESOPs expense which dented earnings in those years. At the upper end of the price band, the PE multiple works out be 44x FY2018 earnings (an exceptionally profitable year), which appears on the higher side when compared to large established listed retail players like Arvind (available at 34x FY2018 PE). Hence, for its limited financial history, singular focus on ethnic woman apparel and demanding valuations, we recommend ‘Neutral’ on the issue,” said the brokerage house.
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Avoid is the call from Choice Broking which feels that the current gross margins are not sustainable in future in the highly competitive market and high concentration of unorganized players. “On valuation front, at higher price band, the company is demanding a P/E valuation of 44.8x (to its restated FY18 EPS of Rs. 16) as against the peer average of 38.8x. 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 assigning an “AVOID” rating to the issue,” opined the firm in its research note.
In its IPO note, SMC Global Securities highlighted that TCNS Clothing is yet to receive the trademark for its brand W and this makes the company unable to stop misuse of the ‘W’ logo. “As the issue is offer for sale, fund raised will not go to the company. Also the issue price looks expensive. Considering all these aspects, investors with high risk appetite, may invest for long term. We have given 1.5 rating out of 5,” noted the brokerage house.
