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TCNS Clothing - Q2FY21 Company Update - ICICI Direct

Posted On: 2020-11-18 01:31:56

Post relaxation of lockdown restrictions, TCNS witnessed a healthy sequential recovery but sales continue to be below pre-Covid levels. Revenue recovery rate is on an upward trajectory with sales reaching 45% of pre-Covid levels in Q2FY21 and ~70% in October. Online sales continue to grow swiftly with October registering highest ever sales. Around 95% of the stores are operational as on end of Q2FY21. Emphasis on minimising cash burns are on track with TCNS securing full year rental savings of ~30% YoY, and potential annualised savings of 15-20% for employee expenses in FY21E. It continues to have healthy cash reserves worth Rs. 110 crore (Rs. 170 crore in FY20) and additional unutilised bank limits as on H1FY21. Furthermore, it is looking to optimise working capital and freeing up cash through significantly reducing fresh buys and reverting to utilising full credit periods (expects positive operational cashflows from Q3FY21 onwards).

Valuation & Outlook

TCNS will be redeploying SS20 merchandise over next season, significantly reducing fresh buys. Working capital release coupled with reduction in cash burns will translate into positive operating cashflows from Q3FY21E onwards. TCNS has secured significant fixed cost reduction for the year through rationalising unviable stores (shut 21 stores in H1FY21), rental waivers, rationalising staff overheads and curbing discretionary spending (ad-spends). We expect cost saving initiatives to have long-term positive impact post the pandemic as well. Being a net cash positive company (Rs. 110 crore cash & investment), TCNS would be better positioned to tide over the current turbulent market scenario. We are positive on the long term outlook, considering the company's strong brand franchise and healthy operating metrics. We introduce FY23E estimates, and pencil in earnings CAGR of 27% in FY20-23E (on a comparatively low base) with higher RoIC of ~ 25% in FY23E. We reiterate BUY rating on the stock with a revised TP of Rs. 475 (27x FY23E EPS, previous TP: Rs. 410).

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Shares of TCNS Clothing Co. Ltd was last trading in BSE at Rs.411.8 as compared to the previous close of Rs. 406. The total number of shares traded during the day was 1360 in over 167 trades.

The stock hit an intraday high of Rs. 411.8 and intraday low of 406.5. The net turnover during the day was Rs. 557332.

Source: Equity Bulls

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