Anand Rathi Is Bullish On This Debt-Free Small Cap Branded Apparel Stock, Suggests Buy For 40% Gains

Anand Rathi, a leading brokerage firm, has recently published a report on TCNS Clothing giving a 'buy' rating for a target price of Rs 808 apiece. If potential investors buy the stocks of the company at the Current Market Price they can expect a gain of 40% in 12 months considering the brokerage's estimated target price.

Stock Outlook

TCNS Clothing Ltd's stock's Current Market Price is Rs 577.65 apiece after gaining 1.89%. Its 52-week low was recorded at Rs 494.10 apiece on June 20, 2022, and 52 weeks high was recorded at Rs 932 apiece on November 17, 2021, respectively. Its debt to equity ratio is 0. It is a small cap stock with a market capitalization of Rs 3,560 crore.

In terms of returns, the stock has gained 7.44% in the last 1 week, and 15.62% in the last 1 month, respectively. However, the stock has not performed well in long run. In the last 1 year, it has given a negative return of 0.49% and in the last 3 years, it has given a negative return of 25.44%, respectively. Since its listing, its share price has fallen 12.36%.

Revenue growth to pick up

Boosted by a pick-up in its category, SSSG and network, we expect TCNS's revenue growth to step up over FY23-FY24. Women's ethnic-wear sales were the last to recover after the Covid-19 pandemic due to its greater discretionary nature and with offices and events now restarting. Channel checks show consumers are back in stores and looking at fashion than need-based purchases. We expect SSSG to pick up from Q3 FY23 driven by product launches and new categories (footwear, cosmetics, Elleven). Store expansion is a key area for the company in FY23-24 and it plans to add 100 (net) EBOs yearly. The store addition will come from the franchisee-led project Bharat models in tier-3 and -4 markets and expansion in existing markets. On the supply side, it integrated warehouse set up last year and automated inventory planning is now fully geared to support higher growth.

Balance-sheet strength to continue

Its cash-conversion goal was successful. TCNS ended FY22 with Rs1.6bn cash (Rs1.7bn in FY20) via lower working capital and cost optimisation. Its approach in the last two years will now help it invest in growth levers and deploy cash to fuel growth with more investment in working capital and other capex. We expect capex of Rs500m-600m over FY23-24, funded from internal accruals. With profitable revenue growth and better working capital, we expect FCF generation to rise despite more capex.

Anand Rathi Recommends buy for a target price of Rs 808

According to the brokerage, "After focusing in the last two years on preserving balance-sheet strength, TCNS is set to concentrate on accelerated growth in FY23-24. With no debt, its end-FY22 cash reserve was Rs1.6bn. Its approach in the last two years will now enable it to invest in growth levers and deploy cash to fuel growth. With better SSSG, store additions and the new categories driving growth, we expect ~47%/100% revenue/EBITDA CAGRs over FY22-24. We expect a 17.9% EBITDA margin in FY23. We retain our Buy rating with a Target Price of Rs 808 on 15x FY24e EV/ EBITDA."

Risks: Competition from lower-priced private labels, great dependence on one category, failure in a season.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.