| TCNS Clothing Co. Limited | ||||||
| Long-term rating continues on 'Watch Positive’; Short-term rating reaffirmed; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has continued its rating on the long-term bank loan facilities of TCNS Clothing Co. Limited (TCNS) on ‘Rating Watch with Positive Implications’ while reaffirming the short term rating at ‘CRISIL A1+’.
The ratings were placed on watch following a public announcement that Aditya Birla Fashion and Retail Limited (ABFRL; rated CRISIL AA+/Stable/CRISIL A1+) will acquire 51% stake in TCNS and subsequently TCNS will be amalgamated into ABFRL. Ratings were placed on ‘Watch with Positive Implications’ on account of the synergies benefit that would be accrued to TCNS; these synergies include strengthening of organizational capabilities, coverage of complementary markets and consumer segments, channel efficiencies, revenue synergies through sharing of consumer understanding and market insights, among others. This would also enable a comprehensive management of business with focus on quality, distribution and brand building thereby further strengthening the market position.
The acquisition of 51% stake in TCNS by ABFRL is yet to take place and is expected to complete in the near-to-medium term. Hence, CRISIL Ratings will continue to monitor the same. CRISIL Ratings will also continue to monitor the subsequent merger of TCNS into ABFRL which is subject to regulatory and other approvals and is likely to take around 12 months to complete. CRISIL Ratings will remain in contact with the management and monitor the developments and will resolve the watch following the completion of acquisition of majority stake in TCNS by ABFRL as well as a detailed discussion with the management with regards to clarity on business and financial profiles of the business. The credit profile of TCNS is expected to improve to high degree of safety rating category on account of the synergies benefit that would be accrued to the company.
There has been a revival in the overall operating performance of the company which had got impacted due to Covid-19 during the two fiscals ended fiscal 2022. Company is estimated to achieve revenue of Rs 1201.6 crore fiscal 2023, ~34% YoY growth from Rs 897 crore during fiscal 2022. The growth is driven by improved footfalls and improved demand backed by festive season as all stores are now fully operational. TCNS is expected to have added around 76 stores (net) during fiscal 2023 and will further introduce new showrooms which will support the revenue growth over the medium term. Operating margin was 10.5% for full year fiscal 2023 on account of one-time impact on profitability in Q4 FY 2023 (for 9M FY 2023, company had reported operating margin of 12.56% which was supported by various mitigation measures undertaken by the company such as closing of some stores, focus of online channels, lease rent waivers, supply chain optimization etc. leading to improvement of margins). The margin was impacted in Q4 FY 2023 due to lower sales and higher than normal discounting in the season end, higher selling and distribution expenses, increased investment in marketing and certain provisions. However, the same was a one-time impact on the operating profitability. Operating margin is expected to recover to around 12-13% going forward aided by increased scale of operations. Financial risk profile of the company has remained comfortable in absence of any long-term debt obligations supported by healthy networth estimated at around Rs 600 crore as on March 31, 2023. Gearing is low, estimated at around 0.07 time. Supported by continuous healthy accretion to reserves and in absence of any major debt funded capex and nil long term debt obligations over the medium term, the financial risk profile of the company is expected to remain healthy.
The ratings continue to reflect the company’s strong brand equity, its focus on design and marketing, pan-India market reach, and established position in the women's ethnic wear segment. The ratings also factor in a strong financial risk profile. These strengths are partially offset by large working capital requirements and exposure to intense competition in the textile garments business. |
Key Rating Drivers & Detailed Description Strengths: Healthy business risk profile: The business risk profile is supported by TCNS’ strong brand equity, large retail footprint, and an in-house design team. Garments are retailed under the W, Aurelia, Elleven and Wishful brands, which cater to different segments, through specific pricing strategies. W brand contributes more than 50% of total operating income, followed by Aurelia brand in range of 30-40% and Wishful at below 10% over past 4 years. Elleven brand is the newest and sales under the same are miniscule. Company has continuously increased their physical presence by continuous opening of new stores and increasing the market presence with continuously increased physical presence with continued focus in tier 2 and tier 3 cities through branding and opening new stores. TCNS has over 4200 points of sales with strong owned omnichannel network and deep partnerships across all key offline and online retailers.
There has been a revival in the overall operating performance of the company which had got impacted due to Covid-19 during the two fiscals ended fiscal 2022. Company is estimated to achieve revenue of Rs 1201.6 crore fiscal 2023, ~34% YoY growth from Rs 897 crore during fiscal 2022. The growth is driven by improved footfalls and improved demand backed by festive season as all stores are now fully operational. The growth in revenue is expected to remain healthy owing to demand coming from new showrooms.
Strong financial risk profile and liquidity: The company has limited reliance on external debt. It has a robust networth estimated at Rs 600 crore as on March 31, 2023 driven by healthy accretion to reserves. With stable profitability expected and continuous accretion of reserves, the networth of the company is expected to improve further. Capital structure is healthy, as reflected in gearing and TOLANW of 0.07 time and 1.34 times, respectively, estimated as on March 31, 2023. Going forward gearing is estimated to remain low as company does not plan to take debt for its capex. Interest cover is moderate at 2.72 times in fiscal 2023 on account of the one-time impact on margin in Q4-FY23. However, it is expected to improve to over 4.5 times in fiscal 2024 backed by recovery in profitability. NCA/AD is healthy at 2.61 times in fiscal 2023. Debt protection metrics are expected to remain comfortable going forward.
Over the last three years company is continuously doing capex for expansion of its stores. In-line to that company will be doing further capex in fiscal 2024 also. The capex will be fully funded through companies’ internal accruals. Company is into the expansion mode to increase its brand visibility and is expected to have opened around 76 stores (net) in fiscal 2023.
Weaknesses: Large working capital requirements: Gross current asset (GCAs) days are estimated to be around 205 days as on March 31, 2023, driven by sizable inventory of around 168 days and moderate receivables of around 79-80 days. The business model necessitates conceptualization and manufacturing of garments well in advance, and hence, maintenance of large number of units for each season, resulting in large inventory. With improvement in scale, the bank limits are moderately utilized, though dependence on payables persists.
Exposure to intense competition in the women's retail ethnic wear segment: Competition in the women's retail ethnic wear segment is becoming intense, notwithstanding the strong growth momentum. The company has been ramping up its retail distribution network and advertising campaigns to sustain growth and maintain brand awareness. However, other established brands, such as Biba, Fab India, Meena Bazaar, Global Desi, and Anokhi, in addition to several regional brands also pursue such strategies. Furthermore, the ever-changing nature of trends makes it imperative to revamp the portfolio periodically. The company’s ability to constantly innovate and update its portfolio will, therefore, remain a key monitorable. |
Liquidity: Strong Liquidity is supported by sizeable cash accruals, estimated to be around Rs 103 crore against no repayments in fiscal 2023. Going ahead, net cash accruals are expected to be around Rs 140-190 crores with Nil repayment obligations. Bank limits are sparingly utilized; average utilization was 30% for the 12 months ended July 2023. Company has cash and cash equivalents (including mutual fund investments) of nearly Rs 25 crore as on Mar 31, 2023. This has reduced from ~Rs 42 crore as on Sep 30, 2022 as the funds have been deployed for opening of stores, investment in capex, revamping of stores, and for funding the incremental working capital requirements of regular business, etc. This portion is likely to be remain unencumbered and support the liquidity. Current ratio of the company is estimated to be around 1.4 times as on March 31, 2023. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company TCNS was set up in December 1997 by the promoters, Mr OS Pasricha and Mr AS Pasricha and is a professionally managed company listed on the BSE and the NSE. The company manufactures and retails ethnic and fusion women's wear. Garments are retailed through exclusive stores, multi-brand outlets, and chains such as Lifestyle, Reliance Trends, Pantaloons, and Shoppers Stop. It has 648 exclusive stores in more than 100 cities as on date. |
Key Financial Indicators
*Basis results declared for period Apr 01, 2022 to Mar 31, 2023 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Rs 22 crore of non-fund based limit is a sub-limit # Rs 8 crore of non-fund based limit is a sublimit @ Rs 42 crore of non-fund based limit is a sublimit |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
|
Criteria Details
|