TCNSBRANDSNSENovember 11, 2022

TCNS Clothing Co. Limited

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15analyst exchanges

1executives

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Management on call

Anant Daga

MANAGING DIRECTOR – TCNS CLOTHING COMPANY LIMITED

Key numbers — 40 extracted

46%

that in Q2, we have achieved our highest ever quarterly sales. Overall, the company revenue grew 46% year-on-year and 27% sequentially over Q1 FY'23, to clock INR 351 crores for the quarter. A key m

27%

achieved our highest ever quarterly sales. Overall, the company revenue grew 46% year-on-year and 27% sequentially over Q1 FY'23, to clock INR 351 crores for the quarter. A key milestone this quarter

INR 351 crore

. Overall, the company revenue grew 46% year-on-year and 27% sequentially over Q1 FY'23, to clock INR 351 crores for the quarter. A key milestone this quarter has been the number of EBOs launched - In line wit

60%

y has seen strong recovery except north where it's lags. Overall, for us, offline channel grew by 60% over last year. Aurelia led the growth, aided by a strong product range and comprehensive marketi

rs,

25. As we shared earlier, given the rapidly evolving experience expectations of the Indian consumers, Project Rise initiative is helping us tap into existing demand in some of the most critical and im

2.7x

one of the largest partners is still not functional. MBO continues to grow well and scaled up to 2.7x over Q2 last year. Overall, it has been heartening to see the offline channels bouncing back afte

INR 100 crore

nce, the new forays are scaling up rapidly and we are well on track to reach our stated target of INR 100 crores ARR and consumer sales at the end of the year. All in all, we continue to build on all the key i

INR 351 crore

financial performance in Q2 and H1 FY '23. I'll start with the Q2 performance. Our Q2 revenue was INR 351 crores, which is a growth of 27% over Q1 FY'23 revenues of INR 276 crores and a growth of 46% over Q2

INR 276 crore

erformance. Our Q2 revenue was INR 351 crores, which is a growth of 27% over Q1 FY'23 revenues of INR 276 crores and a growth of 46% over Q2 FY'22 revenues of INR 239 crores. Our gross margin f

INR 239 crore

wth of 27% over Q1 FY'23 revenues of INR 276 crores and a growth of 46% over Q2 FY'22 revenues of INR 239 crores. Our gross margin for the quarter was 67.3% versus 62.7% in Q2 of FY'22. As we hav

67.3%

6% over Q2 FY'22 revenues of INR 239 crores. Our gross margin for the quarter was 67.3% versus 62.7% in Q2 of FY'22. As we have mentioned earlier, we should see this metric in conjuncti

62.7%

FY'22 revenues of INR 239 crores. Our gross margin for the quarter was 67.3% versus 62.7% in Q2 of FY'22. As we have mentioned earlier, we should see this metric in conjunction with selli

Guidance — 20 items

Anant Daga

opening

“In addition to these 32 stores, we have upgraded another five stores under Project Rise initiative, taking the tally of Project Rise stores to 25.”

Anant Daga

opening

“As we shared earlier, given the rapidly evolving experience expectations of the Indian consumers, Project Rise initiative is helping us tap into existing demand in some of the most critical and important markets across the country.”

Anant Daga

opening

“Overall, all brands put together, we are well on our target to add 100-plus stores on net basis this year.”

Anant Daga

opening

“We have a strong pipeline of new stores, and going forward, all brands put together, each quarter should see 25 to 30 store additions on a net basis.”

Anant Daga

opening

“Driven by healthy consumer acceptance, the new forays are scaling up rapidly and we are well on track to reach our stated target of INR 100 crores ARR and consumer sales at the end of the year.”

Amit Chand

opening

“I will be giving you an update on our financial performance in Q2 and H1 FY '23.”

Devanshu Bansal

“So do you expect it to normalize by the year-end?”

Anant Daga

“So while this has happened and it's impacted our numbers somewhat in this season, the good thing is we exactly know what the problem is and going forward it's getting solved.”

Varun Singh

“So as you mentioned that 25% is the share that we expect from online business.”

Varun Singh

“So in Q3, we should expect much more strong performance in W?”

Risks & concerns — 5 flagged

So to answer your question, while we have done better than pre-COVID in terms of total revenue, obviously, there is one challenge we’ve seen about W lagging in terms of recovery, but the cost increases are higher than the increase in revenue that has happened in Q2 over a pre-COVID number.

— Amit Chand

But essentially at a product level, costs are not a challenge at all.

— Anant Daga

So there are multiple reasons, but difficult to pinpoint a particular...

— Anant Daga

So you mentioned something on the discounting, maybe I misread it, but are you seeing any such trends that the discounting portion may have to increase or clearly some slowdown in urban demand...

— Rajiv B

So online, there is some pressure on discounting, which again was around festive time and all.

— Anant Daga

Q&A — 15 exchanges

I just wanted to check if you can -- we have sort of invested strongly in the inventory, and we have made some new launches under both W, Aurelia & Wishful. So just wanted to check if you could share some thoughts on the festive traction that has gone by during Diwali as well as post that?

Anant Daga

If you look at the festive traction, Aurelia has seen a strong recovery. So barring north, it has been ahead of the pre-COVID numbers. North still is slightly behind. So that's where Aurelia is. Compared to Aurelia, in W, we had some product challenges, and there were particular silos which we were optimized for maintaining the MRPs closer to pre-COVID - - closer to earlier season levels. W is slightly slower than Aurelia. So this is between the two brands. Wishful is in line with the earlier levels where it was. In terms of new product categories, Elleven has shown great traction in LFS and S

Yes. Sir, I just wanted to understand, when you say that W had some issues with respect to product optimization. So was it related to product design? Or was it related to the pricing of the product because of which you couldn't optimize the product?

Anant Daga

No. So there was no design concern. In fact, if you look at the space, some of the best-selling articles were jump suits and jumprakhas and all that we have launched. So, design was not an issue. What we did was we used some man-made fabrics and we used some value addition techniques which were more optimization for cost. Finally, when the product came, I think the price remained high, but somewhere the conversion dropped in these particular silos. It's not that the entire range had an issue. It was a part of the range. And clearly, the issue was the fabric value addition combination and not d

Sir, two questions. First, on the online business. So as you mentioned that 25% is the share that we expect from online business. And 60% of the business is from B2C channel. So just wanted to understand that, do you think that this increasing revenue contribution from online because I think the percentage of revenue in our case is over-index compared to other apparel retail company that you could see in India, I mean in the listed space that we look at. So how do you kind of look at this number as more of an opportunity or more of a threat because there is so much of intense competition in th

Anant Daga

Mr. Varun, first of all, the contribution from total online business was about 16%. So it's not 25% of total business it's 16%. 25% is from our brand websites. So I see what is happening is over the last couple of years, a lot of marketplaces are also moving away from a B2B model to D2C. And there has been an alignment which we had done in the Q4 of last year. But since then, also couple of players have, again, become now more D2C focus than what they were. So this is that alignment with those guys wherein primary and secondary sales get over this. In terms of overall business, we are at 15%.

Sir, I just had one question. It was on the margin front. So when we see at the revenue level, we've recovered to pre-COVID level yet somehow our margins continue to be much lower than what we've done in the year Q2 FY'20. So is this predominantly explained by the supply chain issue that you mentioned for W or is more to miss that the store expansion is going down on that call?

Amit Chand

This is Amit. I will take this question. So when we are looking at profitability, and this is something that we have mentioned in our earlier calls as that the revenue at a store channel level have to recover to compensate for any cost increase that has happened at the channel level, right? Rentals may have gone up, store salaries may have gone up. So one level of sales increase have to happen at a channel level. And second, at a corporate level also. Overall, revenue has to increase to compensate for any cost increases at a corporate level. So if you look into our rental costs, employee costs

I want to understand where do you classify the W brand, is it more into fashion or regular women wear or office where you can just -- because in case of Aurelia, I can understand that demand was lesser in Q2 because it's -- that was a non-festive season, in Q3 because festive-- so I'm just trying to understand why the W is lacking when we look at all the retailers end, they would have spoken growth across all the segments, all the product categories.

Management

I repeat my question. Sir, I just wanted to understand your thought process. When we look at the two key brands, one is W, one is Aurelia. Aurelia we know it's a very festive-oriented or marriages like people wear it during marriages and festivals. So the demand will be more during Q3 and Q4, but I am still not able to understand why the demand for the W is lesser like before COVID, because it is more of a regular female wear, office-wear you can say because if you look at all the retailers in India that has come with the results they have shown, growth with respect to all categories. So can y

Anant Daga

No. First of all, even W is very-very relevant for festive. So both our brands, W and Aurelia have a part range, which is non-festive, non-occasion wear and a part range, which is occasion wear. So even in the past, W has performed equally well and better. So that's not a question, whether one is festive and one is non-festive. Wishful is one brand, which is completely occasion wear. So that is more dependent on occasions and non-occasion periods. Now coming to W, as I was explaining, W's recovery has been in line till about Q1. In Q2 when we launched the new range, there was a part of the ran

Sir, a couple of questions from my side. First was on this issue that you highlighted for W. Is it the possibility that, that could leave us with some stock and high liquidation in the Q4 quarter given that, as you said, the monsoon fest would continue on generally the EOSS happens in that period? And based on initial trends, which we're not seeing a pickup, would that be one thing that would be monitorable for you?

Anant Daga

See, Nihal, we have to see how the season builds from here on. Luckily, you know the winter has set in and our winter range has nothing to do with these shortcomings that we have seen in the festive range. So hopefully, overall, that part of the business should take off. Coming to the specific inventory silos. Obviously, there would be more leftovers because sell-through of those products has been lower, so that will liquidate through online channel and other liquidation channels that we have. There could be some discounting impact, but given the overall scheme of things, it will not be a very

One question from my side. Can you throw some color with respect to the new stores, the new Project Rise stores that they've added. How have these stores done in 2Q, in the current quarter?

Anant Daga

This is with respect to what stores? The new larger size stores that is under Project Rise. How has the performance of those stores happening in this quarter that is 2Q? Obviously, there was an overall issue with some parts of the W range. But these stores wherever we open continue track about 1.5x to 1.75x kind of numbers. So that strategy is playing out really well and in those stores, the newer categories are also contributing to about 15-odd percent. So that -- those things are playing out well. In fact, we are being more aggressive on that front and we'll be signing, we are signing more s

Sir, your revenue is showing very well, but why is the profit so less on y-o-y basis?

Amit Chand

Sorry, if we understood your question correctly… The revenue growth which you are seeing now, if you see the expense in three years it will increase, if you compare it with pre-COVID. Revenue will not have commensurate growth. If you seeing from last year, then last year, then there was rent concession, salary cuts and market investment was less that is because you see this year profit is less than last year. How is profit for Q3, Q4 this year? If there is good sales growth then business fundamentally, as gross margins and all are in place, should come back on track. Sunketa After so much reve

We can connect to him later also.

Management

Sir, my question is on, you mentioned initially that there will be increase in discounting and this is not only for W, this is for the entire piece, is it? Entire portfolio, is it?

Anant Daga

No. In fact, if you look at it, in our Q2, EOSS, we've been able to manage our discounts well. So I was just answering to a very particular point which Nihal asked about a particular part of the range. So I don't think it was true for the entire range, entire collection and entire range. But are you, I was actually referring to your opening remarks. So you mentioned something on the discounting, maybe I misread it, but are you seeing any such trends that the discounting portion may have to increase or clearly some slowdown in urban demand... Offline, in fact, we have not seen discounting go up

Sir, I have two questions. One is around W. So over the past few years, we have made investments in the quick replenishment cycle. So just wanted to understand the reason why we could not follow this process in this particular style that didn’t do well for us. And going ahead, what are the takeaways that we sort of take from this particular event?

Anant Daga

See, I think let me just clarify that these are two different processes altogether. So what we do is when we create a new range, we obviously do a trade show. We take all our partners' feedback, we take the multi-brand outlet, LFS, and even this time when we launched W, we did all this. And frankly speaking, we've got a much stronger response for W than Aurelia. When it came to the market. Again, I'm reiterating. It was not a design issue. It was more a final outcome of some man-made fabrics and some value additions, which didn't do well. And this took even our partners by surprise. So it's ve

Sorry, I can't follow.

Rakesh Wadhwani

I said my questions are answered.

Sir, just wanted to understand, I'm fairly new to your company. So when you talk about the various channels, so EBO, MBO, and LFS, how does the inventory model work? So once we sell, do we take it back like SOR basis or it's once sold doesn't return to us?

Amit Chand

This is Amit. Let me answer this question. So we'll have to see this at a channel level. So let me explain it to you. So when we talk about EBO. Again, our EBO channel has multiple parts to it. A larger part of EBO channel is where the stores are operated directly by the company, we call it COCO stores. So obviously, in these cases, when I supply the inventory to these stores, and eventually we recognize the revenue when the end sale happens to be end consumer, so we have to take the stock back and we keep doing it within the season, but primarily the stock return typically happens after a par

Thank you, everyone. We take this opportunity to thank you for joining the call. We hope we have been able to address all your queries. For any further information, please get us in touch with us or SGA, our Investor Relations advisers. Wish you all a very happy festive season. Thank you.

Management

Speaking time

Anant Daga

Moderator

Amit Chand

Devanshu Bansal

Rajiv B

Shreyans J

Varun Singh

Vikas Jain

Rakesh Wadhwani

Saurabh Patwa

Opening remarks

Anant Daga

Thank you. Good evening everyone, and welcome to our Q2 and H1 FY'23 earnings conference call to discuss operational and financial performance for the quarter. I'm joined by Amit, our CFO, and SGA, our Investor Relations Advisors. First of all, we wish you a very happy festive season. We hope you all had a joyful celebration with your family and friends and claimed back a part of life, which was being missed last couple of years. While Amit can share detailed financials, let me share key highlights of Q2 and H1 and our perspective on the emerging market situation. As we had laid out, our focus this year is on building growth momentum. I'm happy to share that in Q2, we have achieved our highest ever quarterly sales. Overall, the company revenue grew 46% year-on-year and 27% sequentially over Q1 FY'23, to clock INR 351 crores for the quarter. A key milestone this quarter has been the number of EBOs launched - In line with our aggressive store expansion plan, we opened a gross of 41 store

Amit Chand

Good evening, everyone. I will be giving you an update on our financial performance in Q2 and H1 FY '23. I'll start with the Q2 performance. Our Q2 revenue was INR 351 crores, which is a growth of 27% over Q1 FY'23 revenues of INR 276 crores and a growth of 46% over Q2 FY'22 revenues of INR 239 crores. Our gross margin for the quarter was 67.3% versus 62.7% in Q2 of FY'22. As we have mentioned earlier, we should see this metric in conjunction with selling and distribution expenses and other overheads as every channel has its own nuance in terms of the revenue recognition, gross margin percentage and costs reflecting in selling and distribution expenses or other overheads. Accordingly, basis channel mix, these metrics could vary in a range from quarter-to-quarter. For Q2, the company generated a positive EBITDA of INR 47.9 crores versus INR 38 crores in Q1 FY'23 and INR 45 crores in Q2 of FY'22. PBT for the quarter was INR 10.1 crores versus a PBT of INR 2.6 crores in Q1 and INR 14.1 cr

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