Driven by holiday demand, TCNS Clothing recorded strong growth in QoQ with a revenue collection rate reaching 72% in Q3FY21 versus 45% in T2FY21. The recovery rate is broadly in line with the industry revenue recovery rate (fashion retailers). T3FY21 revenue fell 28% year-on-year to Rs. 237.9 crore (up 65% QoQ). Non-metropolitan cities continue to recover at a rapid pace, with Level I cities reaching 70% and Level II, III cities recovering to around 80% of pre-Covid levels. Stores in metropolitan areas are lagging behind with a recovery rate of 55%. Gross margins remained under pressure (down 670 basis points yoy to 61%), mainly due to a change in the channel mix (higher online sales) and a provision for inventory inactivity (~ 400 basis points). A strong rationalization of general operating expenses, the recovery in sales led TCNS to declare an EBITDA of Rs. 38.5 crore (down 43% year-on-year) compared to an EBITDA loss of Rs. 16 , 3 crores at T2FY21. PAT for Q3 was at Rs. 12.7 crore (down 77% year-on-year) against a net loss of Rs. 27.6 crore at T2FY21.

Assessment and outlook

TCNS redeployed SS20 cargo to SS21 resulting in reduced inventory and freed up working capital. Subsequently, the cash reserves increased from Rs. 110 crore in Q2FY21 to Rs. 155 crore in Q3FY21. It achieved a significant reduction in fixed costs for the year through the rationalization of non-viable stores, rent exemptions (guaranteed annual savings of around 35%), rationalization of staff overheads (annual salary savings of around 20%) and reduced discretionary spending (ad spending). We expect that some cost-cutting initiatives will also have a positive long-term impact after the pandemic. Plans to add stores accelerated, coupled with diversification into new categories (shoes and Aurelia Girls) are expected to fuel growth going forward. Being a net cash positive company, TCNS would be in a better position to weather the current turbulent market scenario. Overall, we maintain our estimates and expect TCNS to generate a healthy ROI of around 25% by FY 23E. We reiterate BUY on the stock with an unchanged price target of Rs. 540 (29.0x FY23E EPS).

For more details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TCNS_CoUpdate_Feb21.pdf

Shares of TCNS Clothing Co. Ltd were last trading in BSE at Rs.404.9 from the previous close of Rs. 402.55. The total number of shares traded during the day was 3,554 in over 343 trades.

The stock hit an intraday high of Rs. 407.95 and an intraday low of 397.75. The net turnover during the day was Rs. 1,435,637.