TCNS Clothing IPO Opens July 18: Should You Subscribe?

TCNS Clothing Co Limited, that sells under Aurelia, W and Wishful brands, is going to open for subscription on 18 July 2018 at the price band of Rs 714-16 per share. It is the fifth initial public offering (IPO) for the financial year 2018-19.

About the company

The Delhi based clothing company is in the business of designing, manufacturing, marketing and retail selling of branded wear for women. It sells its products through large retail chain outlets like Pantaloons, Lifestyle and Shoppers Stop with an overall reach of 1,469 outlets across 203 cities in all the states of India and also through online retailers like Myntra, Jabong, Amazon and its own website. It also has 471 exclusive brand outlets including 6 in Nepal, Mauritius, and Sri Lanka.

IPO Details

Price band: Rs 714 to 716
Face value: Rs 2 per share
Minimum lot size: 20 shares
Offer period: 18 to 20 July 2018
To be listed on: NSE and BSE
Issue managers: Kotak Mahindra Capital Company, Citigroup Global Markets India
Registrar: Karvy Computershare

The promoters of the company Onkar Singh Pasricha and Arvinder Singh Pasricha, along with other shareholders and investors have proposed to sell 1,57,14,038 equity shares in total. The issue will make up for 25.63 percent of the post-offer paid up equity share capital. TCNS Clothing aims to raise Rs 1,121.98 crore on the lower end of the price band and Rs 1,125.13 crore on the higher end.

Should you invest?

The issue is priced at P/E of 44.8 times on the financial year 2017-18 post-dilution basis, which is less than the industry average of 51.9 times, if the higher end of the price band is considered. According to Centrum Broking, the issue is fully priced and "given the mature valuations and growth prospects, one can subscribe to the issue from a long-term perspective."

Some brokers have also raised concerns over its high dependency on suppliers for inputs and ever-changing fashion requirements. Ambit Capital has noted that the company has improved its recall amoung youth aged 25 to 30 years while expanded its store network by three times since 2013 while its competition suffered. But it asks investors to consider if the TCNS Clothing's high gross margin of 63 percent will sustain from its own stores drawing only 30 percent of the revenue. It said, "a price differential of up to 60 percent invites competition from value fashion players and new entrants, which can play truant; a case in point being Madura, a premium offering of ABFRL, which took gradual price hikes until FY16."