Valuation and Recommendation:
Over FY16-18, TCNS sales, EBITDA, PAT has grown at a CAGR of 31.4%, 43.5% & 57.3%. Going forward, branded ethnic market which was valued at $1.5 bn in 2017, is expected to reach $3.4 bn in 2020(CAGR growth of 31%).We believe with the addition of new stores, expansion of product and brand portfolio, TCNS clothing, who enjoys a good brand name and has a strong distribution network accompanied with a shift from unorganized to organized sector, will be able to capture the rising opportunity in the industry. As per IND AS, the company has recorded Share based payment to employees (ESOP) (non cash) which has impacted the operating profit of the company. Share based payment to employee has come down from Rs 90 cr in FY16 to Rs21.5 cr FY18. Adjusting to this, Operating margins of the company has improved from 17.7% in FY16 to 21.1% in FY18. TCNS is a debt free company. FCF of the company stands at Rs 17.3 cr in FY18. Higher PAT margin, with high asset turnover has helped the company to enjoy higher ROE and RoCE for FY18 which stands at 22.3% and 22.7% respectively. On the valuation front, at the given upper price band of issue of Rs 716, TCNS clothing is offered at PE of 44.8x its FY18 EPS of Rs 16 and EV / Ebitda of 27.9 x which is fairly priced in comparison to its competitor. We recommend subscribing to the issue with long term view.