Reliance Retail, Nykaa, Aditya Birla Fashion and Trent Ltd, as well as private equity investors such as TPG Capital and Advent International, have shown interest in buying TA Associates’ 29.24% stake in TCNS Clothing Ltd, the owner of women’s wear brands W and Aurelia, two people aware of the development said.
The talks may also see the promoters of the company sell all or a part of their 32% stake, they added, requesting anonymity.
Investment bank Avendus Capital is advising private equity firm TA Associates on the stake sale. “Both strategic and PE investors are looking at TA Associates’ stake. The promoters are also likely to sell their stake, but they will prefer to sell to a strategic investor if the valuation offered is attractive, else they may consider continuing with another new private equity investor,” one of the two people said.
Investor interest in apparel makers has risen with the easing of the pandemic as people refresh their wardrobes to return to offices, go on vacations and party outside after living through most of the pandemic in casual attire.
On Tuesday, shares of TCNS Clothing fell 0.89% to ₹557.05 on BSE, while the benchmark Sensex gained 0.4% to 62,872.99.
TA Associates’ stake in TCNS Clothing at current stock prices is worth nearly ₹1,000 crore. The purchase of TA Associates’ entire stake will also trigger an open offer to buy an additional 26% of public shareholding in the apparel maker. TA Associates bought a 40% stake in TCNS in 2016 for $140 million, but the private equity firm sold a part of its stake in the company’s initial share price in 2018.
TCNS’ bouquet of brands includes W, Wishful, Aurelia and Elleven. W and Aurelia are the company’s most significant brands, contributing 52% and 41% of its business in the September quarter, respectively.
“Given TCNS’s leading position in the women’s wear segment, wide presence in the market, its strong brands and the company’s expansion into other categories beyond apparel, there is a strong interest among strategics to explore this transaction,” the first person said.
Mails sent to spokespeople for Reliance Retail, Trent, Nykaa and Aditya Birla Fashion and Retail, too, went unanswered. Spokespeople for TPG Capital and Advent declined to comment.
“The company does not have any information with respect to appointment of any investment bank by its promoters in relation to sale of stake of the company, and the company does not comment on any market speculation. The company keeps evaluating various opportunities on an on-going basis and as and when any event becomes a reportable event, it informs the stock exchanges in accordance with applicable provisions of the applicable Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015,” TCNS said in a statement
TCNS Clothing’s revenue rose 46% in the September quarter to ₹350.5 crore from a year ago. However, operating profit grew by just 6% to ₹47.9 crore, and net profit declined by 31% to ₹7.6 crore.
“Lower margins were led by higher marketing/growth investments, which are expected to continue. For Q3 (festive sales), Aurelia brand has returned to pre-covid levels on LTL (like-to-like) basis, but recovery for W brand is lagging due to slower traction in certain styles (fabric issue),” brokerage Emkay Global said in a 12 November note to clients.
The brokerage cut FY24-25 margin estimates by 70-90 basis points (16-17% reduction in earnings per share) as the company is likely to increase investments to boost growth.
“With slower ethnic recovery and margin miss, we downgrade our rating to ‘hold’ with a revised target price of ₹630 (vs ₹800 earlier). Slower store addition is a potential downside risk. Stronger traction in bottom-wear brand Elleven and faster SSG/margin improvement remain potential upside risks,” it added.
