ICICI Direct's research report on TCNS Clothing
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).
Outlook
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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