TCNS Clothing Co Ltd IPO - Should you subscribe?

Incorporated in December, 1997, a Delhi based cloth manufacturing company is going public through its Rs.1125 Crore IPO on July 18, 2018. The issue is closing on July 20, 2018. The issue is a 100% Offer For Sale arrangement. The selling shareholders are off loading 1,57,14,038 shares which are 25.63% of existing shares.

The issue details:

The selling shareholders: The selling shareholders include promoters viz Onkar Singh Pascricha and Arvinder Singh Pascricha who are selling their 29.05% and 24.29% shares respectively. The other selling shareholders viz promoter group shareholders are selling 25% to 100% of their existing shares and investor shareholder Wanger is offloading 27.72% of its share.

The 100% Offer For Sale IPOs are presumed to be risky and when promoters are exiting, it becomes very risky to put hard earned money in the company where its promotors want to exit. It is better to stay away from such IPO. 

Category of investors: Out of 1,57,14,038 shares, 35% shares are reserved Retail Investors

Overview of TCNS Clothing Co. Ltd : The company designs, manufactures and markets and retails a wide portfolio of women's branded apparel  across multiple brands. The company sells its products across India and through multiple distribution channels. As of March 31, 2018, it sold its products through 465 exclusive brand outlets, 1,469 large format store outlets and 1,522 multi-brand outlets, located in 31 states and union territories in India. As of March 31, 2018, it also sold its products through six exclusive brand outlets in Nepal, Mauritius and Sri Lanka. In addition, it sold its products through its own website and online retailers.

Its product portfolio includes top-wear, bottom-wear, drapes, combination-sets and accessories that caters to a wide variety of the wardrobe requirements of the Indian woman, including every-day wear, casual wear, work wear and occasion wear.

Object of the offer: As it is 100% offer for sale, the company shall not receive any proceeds from the issue and the entire proceeds will go the selling shareholders. 

Pricing of the share: The company has set the price which is 46x of its latest earning and 9x of its book value. Prima facie, the shares seems fully priced which may not leave anything on table for investors. However, it is cheaper as compared to its listed peers Page Industries, Aditya Birla Fashion and Future Lifestyle which are trading at much higher PE i.e 91, 90, 60 respectively as on July 16, 2018 while its other peer Kewal Kiran Clothing is  23 PE as on the same date.

Revenue & Profitability: The company's total income was Rs. 849.16 Crore for the Fiscal 2018, and its total income grew at a CAGR of 31.89% between Fiscals 2016 and 2018. Its comprehensive income for the year and adjusted EBITDA was Rs. 97.77 Crore and 183.72 Crore, respectively, for the Fiscal 2018.

Dividend : The company has not declared any dividend in the last five years. 

Conclusion: The industry in which company operates is highly competitive, seasonal and driven by changing trends. The growth of online purchase has substantially reduced footfall at brick and mortar shopping malls and show rooms. The company has been doing good but will face challenge to compete online market.

There are better options available in the secondary market. Many good stocks are available at much reasonable prices. One can explore and prioritize the buying from the open market such quality stock. Moreover, many good IPOs are lined up in July & August. And it is always better to forgo the opportunity than capital.

Thank you for reading...Jai Hind

(I write reviews based on my knowledge and understanding. The reader of this blog should do his/her own research before applying)