- TCNS owns two large established brands in women’s ethnic wear in India – W and Aurelia. Both are already fairly large and have been created bottoms up by the company. There is limited large established pan India competition in women’s ethnic wear in India – other large national players are Fab India, Biba. There is a string of regional players with inferior brand identity versus national brands and operate at lower price points versus national brands. The last leg of competition comes from private label brands from large format stores in India such as Shoppers Stop etc. These have even weaker brand identities and are only sold in the respective LFS stores. Then there is the large unorganised market which still dominates with the lion’s share of the market. All the organised and branded players are gaining share from the unorganised. Thus, while TCNS share in the overall women’s ethnic market is small offering massive growth runway, their two leading brands are dominant among within the national brands. Women’s ethnic wear remains a mainstream market opportunity in India as most Indian women wear ethnic for work, casual and occasion-based needs.
- Both the brands have been built around unique identities – W offers ethnic fusion – Indian wear with influences from western wear; there is virtually no competition for W in the market. Aurelia is Indian traditional wear known for quality and is an established name. TCNS has launched two more brands – Wishful and Eleven with unique identifies but these are small right now.
- Company’s key strength is the ability to create brands and scale them up like they have proven with W and Aurelia. Because the company has the ability to create strong brands, the are channel agnostic – their products are sold through own and franchised EBOs, MBOS, LFS and online. Strong brand image has meant higher penetration within LFS and ease of signing up franchises.
- TCNS has 40+ inhouse design teams which churn out fast fashion designs across multiple seasons throughout the year. TCNS has been shrinking time to market for the latest designs which results in less stock obsolesce. Brand focus, frequent fast fashion design launches and speed to market allows TCNS to sell a higher share of its apparel at full price. TCNS has strong vendor/supply chain relationships built over the years which is important to convert designs into quality merchandise at a fast pace. TCNS is making most of its store omni-channel capable and is investing in its information systems to capture the latest market trends.
- Points 2-4 above become the main competitive advantages of TCNS. Pan India distribution across channels (EBOs, MBOs, LFS, e-commerce) is also strong competitive advantage although may not be a strong one. Apparel retailing is generally a tough industry to earn consistent returns on capital due to high competition, working capital requirement and low brand loyalty for most brands.
- Category/ line expansion: TCNS is planning to extend W and Aurelia into categories such footwear, handbags etc. The company will continue to operate like a brand women’s brand platform – incubating and scaling up new women’s brands.
- Financial metrics: Company has growth very fast overt the last decade although growth has slowed down over the next couple of years. Gross margins of 60-65% and ROC of high teens is evidence that numbers confirm the narrative. Most of the growth has been funded over the years through internal accruals. Business has 100 days working capital which is normal for a branded apparel business. Fixed asset intensity is relatively light since 70% sales come through non TCNS owned stores. This is a business where the high teens ROC can fund a high teens growth for years to come if the management continues to execute well on existing on new brands and preserve their fast fashion and brand orientation.
- Management and Ownership: Professional CEO has been around for 10 years with the company and has risen up the ranks; still in his 40s and communicates well. Company claims thay senior management has seen no exit over the last 7-8 years. Ownership is split between the founding Pasricha family and the new private equity owner TA associates. Both continue to own sizeable stakes in the company post IPO. Chairman is from the founding family and TA associates has a board seat. It seems that CEO Anand Kumar Daga has been given a lot of freedom to build the business. He is the current face of the company and owns a 6% stake. Management appears conservative and shies away from giving hard guidance; explains the business and their own actions in detail. Reporting is clean and transparent.
- Valuation: The business does not deserve a high multiple given low entry barriers and high competition. That said, a good business with proven ability to build and scale brands such as TCNS can be accorded a superior multiple – especially in light if its ability to earn and grow in high teens.
- Institutional ownership: FIIs – Fidelity, Steinberg, Goldman, Saif Partners. DIIs – Axis and ICICI Pru have owned it until very recently.
- Risks: The major risk in this business is that brand life can be short and from time to time, brands are suspectable to heavy EOSS discounting by peers. The only way to escape from this is keeping designs fresh and with high frequency, communicating brand identity efficiently and shying away from excessive discounting to make short term sales. TCNS thus far seems to be faring well here. Company should remain within its circle of competence – not venture outside women into men’s (they have said they will not), going very aggressive on own EBOs since there is capital commitment there.
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