RESULTS REVIEW 3QFY20 09 FEB 2020

TCNS Clothing BUY

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO>& Thomson Reuters

Pain continues, but priced in TCNS continues to reel under the pain of 1. Heightened competitive intensity as 1. Peers step up liquidation/promotion to reduce their working capital pangs (Per channel checks), 2. MBO sales continue to dip, 3. Selling & Distribution (S&D) increases cost of retailing. However, we believe the worst may be behind the category leader as MBO rationalization is nearly over and product lines are getting better. The company has been adding relevant categories (Drape/bottom-wear) via brand Elleven and Footwear to better round its portfolio of offerings for women. HIGHLIGHTS FOR THE QUARTER Growth remains sub-par: TCNS' revenue growth remained

sub-par at 9.6% YoY to Rs 3.3 bn (vs est: Rs. 3.2bn) primarily driven by store expansion (addition of 65/316 EBO/LFS doors (Base: 521 EBO/ 1,573 LFS). SSSG for 3Q stood at a 2%. Growth was impacted primarily led by the sub-par show of the W. W/Aurelia/Wishful grew 2/25/2% respectively in 3Q. W's dismal show was a function of its over-reliance on MBOs vis-à-vis other brands and its higher exposure to airport stores (both formats reeling under the stress of consumer slowdown/ liquidity issues).

Gross margin (GM) dips, high channel commissions increase cost of retailing: GM dipped ~70bp each in to 67.8%/66.6% YoY in 3Q/9MFY20 primarily led by shift in

channel mix (MBOs reducing). Contextually, this is a reasonable show given that market remains froth with heightened promotions. What is discomforting is cost of retailing is inching up courtesy 1. Higher trade channel commissions, 2. Higher A&P spends, freight costs and warehousing costs. Note: Channel commissions have increased across peers (Biba, HoA, FabIndia) - Per channel checks. Adj. EBITDA margins contracted 396bp YoY to 12.9% (vs est: 12%). S&D spends and other expenses were up 217/103bp YoY at 23/9.7% respectively (vs est: 22/9%)

Making the right noises: Management hinted that 1. Throughput pressure 2. MBO rationalization, 3. Worst of margin pressures may be behind as product lines are getting better and focus increasingly shifts to push full-price sales. Inventory management is also getting better.

STANCE We believe we may be at the fag-end of top-line/WC pressure as MBO rationalization is nearly over. Margins are also set to improve FY21 onwards as TCNS 1. smartly re-negotiates rent bills and 2. Low base effect. While we cut our EBITDA estimates by 3-4% to factor in higher cost of retailing, we roll-forward our DCF to FY22 and hence, maintain our TP of Rs. 670/sh, implying 18x EV/EBITDA. Reiterate BUY.

Financial Summary (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Revenue 3,290 3,002 9.6 3,208 2.5 9,971 11,480 12,540 14,187 15,968 Adj EBITDA 425 507 (16.1) 400 6.1 1,554 1,768 1,633 1,910 2,229 APAT 560 371 51.0 195 187.1 1,196 1,478 1,269 1,511 1,755 Adj. EPS (Rs)* 21.2 23.2 19.9 23.7 27.5 P/E (x) 27.4 25.1 29.4 24.9 21.4 EV/EBITDA (x) 22.6 19.3 20.3 16.9 14.2 Core RoCE(%) 28.9 33.8 23.8 25.4 26.5

Source: Company, HDFC sec Inst Research, * - Adj. EPS for E-SOPs

INDUSTRY RETAIL CMP (as on 07 Feb 2020) Rs 585 Target Price Rs 670

Nifty 12,098

Sensex 41,142

KEY STOCK DATA

Bloomberg TCNSBR IN

No. of Shares (mn) 61

MCap (Rs bn)/(US$ mn) 36/503

6m avg traded value (Rs mn) 10

STOCK PERFORMANCE (%)

52 Week high / low Rs 870 / 550

3M 6M 12M

Absolute (%) (19.7) (13.8) (19.2)

Relative (%) (20.9) (26.0) (30.5)

SHAREHOLDING PATTERN (%)

Dec-19 Sep-19

Promoters 59.09 59.09

FIs & Local MFs 21.1 20.79

FPIs 9.36 9.7

Public & Others 10.45 10.42

Pledged shares 0 0 Source : BSE

Jay Gandhi jay.gandhi@hdfcsec.com +91-22-6171-7320

Rutvi Chokshi rutvi.chokshi@hdfcsec.com +91-22-3021-2080

TCNS: RESULTS REVIEW 3QFY20

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Earnings Call Highlights TCNS’ revenue grew at 9.6% YoY to Rs 3.29 bn. Gross

margins contracted by 71 bps YoY to 67.8%. The contraction in gross margins was mainly on account of channel mix. Adj EBITDA was Rs 0.48 bn. Comparable PAT in 3QFY20 is Rs 0.31 bn vs Rs 0.35 bn in 3QFY19.

SSSG stood at 2% in 3Q. SSSG was lower in 3Q due to lesser festival days, late onset of severe winter, weak consumer sentiments, de-growth of airport stores and MBO rationalization. TCNS aims at achieving a mid-single digit SSSG.

TCNS added 18/115/-139 EBOs/LFS/MBOs in 3Q. It vigorously carried out MBO rationalization and is almost done with the process in 3Q but, there could be some lingering impact in 4Q. It plans on adding 60-65/75-80 EBOs in FY20/FY21. Similar number of stores are planned to be added via LFS.

Online channel grew fastest: EBO/LFS/Online & Others grew 9/19/33% to Rs. 3.6/3.4/1.1bn respectively; while the MBOs continue to lose share in the mix; declined 58% YoY to Rs. 99mn in 3Q

TCNS has invested heavily in marketplace management, data science, B2C warehousing, inventory rationalization, CRM and building other capabilities. It has developed a machine learning algorithm that will ensure: 1) right stock in the right store at the right time and 2) reduce dead stock. The benefits of these investments to accrue in 3QFY21. There was a significant hike in the overheads due to these investments.

There was an increase in the warehousing expenses in 3Q. In October freight expenses slightly went up as the company tried to get assortments to far flung stores too. There was also an increase in A&P spends to push their products due to the lulled demand. In 3QFY20, Diwali was earlier than 3QFY19 because of which Diwali and end of season sales didn’t coincide leading to more promotional spends. All these together ended up denting the EBITDA margins.

W’s revenue de-grew at 1.2% YoY to Rs 1.8 bn. The sub-par show of W was due to the over-reliance on MBO channels and almost full exposure to airport stores. MBO channels and airport stores both are reeling under the stress of consumption slowdown and liquidity issues. Airport stores have de-grown at 9-10% YTD.

Aurelia grew satisfactorily at 23% YoY to Rs 1.2 bn as it continues to perform well. Aurelia’s heavy accounts have done better than W’s.

TCNS launched a new brand Elleven- a contemporary bottom and drape wear solution for women. It opened its first store in Ahmedabad and is planning to open 4 more stores in the coming months. For every new store of Elleven, capex of Rs 15-20 lacs is expended. Elleven stores are sized from 500-600 sq ft.

TCNS is also launching a footwear line under the W in March 2020. This will be a non-cannibalization category. It also is introducing Aurelia Girls which will be retailed through Aurelia stores and will be focusing on ethnic wear which has gained traction. TCNS can be seen strengthening its product line.

TCNS: RESULTS REVIEW 3QFY20

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Quarterly Financials Rs. Mn 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY20E FY19 YoY (%) Net Revenue 3,290 3,002 9.6 3,208 2.5 12,540 11,480 9.2 Material Expenses 1,060 946 12.1 1,125 (5.7) 4,335 3,899 11.2 Employee Expenses 415 379 9.6 407 2.1 1,598 1,438 11.1 Other Operating Expenses 1,136 1,170 (3.0) 1,026 10.6 4,975 4,374 13.7 Reported EBITDA 679 507 34.0 651 4.3 1,633 1,768 (7.6) Depreciation 248 55 351.4 238 4.3 238 222 7.1 EBIT 430 452 (4.7) 413 4.3 1,395 1,546 (9.8) Other Income 72 21 236.9 26 170.2 200 75 165.8 Interest Cost 99 0 NM 96 3.5 10 5 94.6 PBT before exceptional 403 472 (14.7) 343 17.3 1,585 1,616 (1.9) Exceptional - - - - - - - - PBT 403 472 (14.7) 343 17.3 1,585 1,616 (1.9) Tax (147) 102 NM 167 NM 399 302 32.2 Share of Associate Earnings - - - - - RPAT 550 371 48.4 177 211.1 1,186 1,314 (9.8) APAT 560 371 51.0 195 187.1 1,269 1,478 (14.2) EPS(Reported) 9.0 6.0 48.3 2.9 211.1 18.5 20.6 (10.3) EPS(Adjusted for ESOPs) 19.9 23.2 (14.2)

% of Net Revenue 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps) FY20E FY19 YoY (bps) Material Cost 32.2 31.5 71 35.1 (283) 34.6 34.0 60 Employee Expenses 12.6 12.6 1 12.7 (5) 12.7 12.5 22 Other Expenses 34.5 39.0 (447) 32.0 253 39.7 38.1 157 EBITDA 20.6 16.9 375 20.3 35 13.0 15.4 (238) Tax Rate(% of PBT) NM 21.5 NM 48.5 NM 25.2 18.7 649 APAT 17.0 12.3 467 6.1 1,094 10.1 12.9 (276) Source: Company, HDFC sec Inst Research

TCNS: RESULTS REVIEW 3QFY20

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Story in Charts Revenue and growth (Rs. mn, YoY %) TCNS’ SSSG at 2% in 3QFY20

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Adj. EBITDA and margin (Rs. mn, %) GM at 67.8% and Adj. EBITDA margin at 12.9%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Net Revenues grew by 9.6% YoY primarily driven by store expansion. SSSG remained uninspiring at 2% as compared to base 8%. The growth ebbed due to the non-satisfactory performance of TCNS’ W brand. Cost of retailing is due to higher A&P spends, freight costs, commission costs and warehousing exp. TCNS is investing in building a machine learning algorithm which required deployment of an 11-12 people IT team. It also incurred exp to build a fully fledged team for its new footwear line and Aurelia Girls line.

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5.0

10.0

15.0

20.0

25.0

2,500 2,600 2,700 2,800 2,900 3,000 3,100 3,200 3,300 3,400

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Revenue (Rs mn) YoY (%) (RHS)

8.0

(4.6

)

3.0

0.1

2.0

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

3QFY

19

4QFY

19

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SSSG (%)

-2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

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400

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600

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

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2QFY

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3QFY

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Adj EBITDA Adj EBITDA Margin % -RHS

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20.0

30.0

40.0

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60.0

70.0

80.0

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1QFY

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Gross Margin % Adj EBITDA Margin %

TCNS: RESULTS REVIEW 3QFY20

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Brand-wise revenue mix (%) Total no. stores of TCNS at 3609 in 3QFY20

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Channel wise revenue split (%)

Channel-wise no. of stores

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Brand-wise revenue mix remains largely the same. TCNS added 65/316 EBOs/LFS stores YoY and closed 362 MBOs bringing the store count to 3609 in 3QFY20. TCNS is focusing on rationalisation of MBOs as they are grappling with liquidity issues.

-10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

100.0

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

W Aurelia Wishful%

3540

3560

3580

3600

3620

3640

3660

3680

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

41.5 39.5 42.0 42.7 42.0

39.5 37.5 43.0 38.7 42.0

8.0 6.6

4.0 5.9 3.0 11.0 16.3 11.0 12.7 13.0

-10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

100.0

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

EBO's LFS MBO's Online & Others%

0200400600800

100012001400160018002000

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

EBOs EBOs LFS MBOs

TCNS: RESULTS REVIEW 3QFY20

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Quarterly snapshot (Actual vs HDFC estimates) Rs. Mn 3QFY19 2QFY20 3QFY20 YoY (%) QoQ (%) 3QFY20E Variance (%) Net Revenue 3,002 3,208 3,290 9.6 2.5 3,179 3.5 Total COGS 946 1,125 1,060 12.1 (5.7) 1,081 (1.9) Gross Profit 2,056 2,084 2,230 8.5 7.0 2,098 6.3 Gross Profit Margin (%) 68.5 64.9 67.8 (71 bps) 283 bps 66.0 177 bps Total Operating expenses 1,549 1,433 1,551 0.1 8.2 1,462 6.1 Reported EBITDA 507 651 679 34.0 4.3 636 6.8 EBITDA Margin (%) 16.9 20.3 20.6 375 bps 35 bps 20.0 63 bps Adj EBITDA 507 400 425 (16.1) 6.1 382 11.2 Adj EBITDA Margin (%) 16.9 12.5 12.9 (396 bps) 44 bps 12.0 90 bps Depreciation 55 238 248 351.4 4.3 240 3.5 EBIT 452 162 430 (4.7) 165.2 396 8.7 EBIT Margin (%) 15.0 5.1 13.1 (196 bps) 802 bps 12.4 63 bps Finance cost 0 96 99 NM 3.5 100 (1.1) Other income 21 26 72 236.9 170.2 26 175 PBT 472 93 403 (14.7) 332.6 322 25.2 Adj. PBT 472 362 412 (12.7) 14.1 331 24.5 Exceptional Item - - - - Tax Expenses 102 167 (147) NM NM 80 NM Effective Tax Rate (%) 21.5 178.9 (36.6) NM NM 25.0 NM Share of associate earnings - - - - EO items - - - - - PAT 371 (73) 550 48.4 NM 241 128.0 APAT 371 195 560 51.0 187.1 251 123.2 APAT margin (%) 12.3 6.1 17.0 467 bps 1094 bps 7.9 912 bps Source: Company, HDFC sec Inst Research

TCNS :RESULTS REVIEW 3QFY20

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Brands and Channels Performance (Actual vs HDFC estimates)

Source: Company, HDFC sec Inst Research

3QFY19 2QFY20 3QFY20 YoY (%) QoQ (%) 3QFY20E Variance (%) Brand-wise revenue (Rs. Mn) 3,002 3,208 3,290 9.6 2.5 W 1,831 1,829 1,809 (1.2) (1.1) Aurelia 991 1,123 1,217 22.9 8.4 Wishful 180 257 263 46.1 2.5 Brand-wise growth (%) W 24 (6) 2 (91.7) NM Aurelia 18 10 25 38.9 150.0 Wishful 18 15 2 (88.9) (86.7) Channel-wise revenue (Rs. Mn) 3,002 3,208 3,290 9.6 2.5 3,179 3.5 EBO's 1246 1370 1382 10.9 0.9 1,345 2.7 LFS 1186 1242 1382 16.5 11.3 1,269 8.9 MBO's 240 189 99 (58.9) (47.9) 168 (41.3) Online & Others 330 407 428 29.5 5.0 396 7.9

Channel-wise growth (%) EBO's 21 6 9 (57.1) 50.0 8 12.5 LFS 17 4 19 11.8 375.0 7 171.4 MBO's 65 (40) (58) NM NM (30) NM Online & Others 15 1 33 120.0 3,200.0 20 65.0

W showed a poor growth of 2% mainly because of its over dependence on MBOs and exposure to struggling airport stores. Aurelia continued to perform well growing at 25% in 3Q. TCNS is majorly focusing on expanding LFS and Online channels and trying to reduce MBO reliance as it completes its MBO rationalisation. MBOs de-grew by 58% in 3Q.

TCNS :RESULTS REVIEW 3QFY20

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Source: Company, HDFC sec Inst Research (Note: Rent expenses are Pre-IND-AS and hence comparable) Change in estimates

(Rs mn) FY20E FY21E FY22E

New Old Change (%) New Old Change (%) New Old Change (%) Revenue 12,540 12,422 1.0 14,187 14,173 0.1 15,968 15,935 0.2 Gross Profit 8,206 8,197 0.1 9,276 9,345 (0.7) 10,433 10,498 (0.6) Gross Profit Margin (%) 65.4 66.0 (55 bps) 65.4 65.9 (55 bps) 65.3 65.9 (55 bps) EBITDA 1,633 1,767 (7.6) 1,910 1,982 (3.6) 2,229 2,303 (3.2) EBITDA margin (%) 13.0 14.2 (120 bps) 13.5 14.0 (52 bps) 14.0 14.5 (49 bps) APAT 1,269 1,334 (4.8) 1,511 1,491 1.3 1,755 1,722 1.9 APAT margin (%) 10.1 10.7 (62 bps) 10.6 10.5 13 bps 11.0 10.8 18 bps EPS (Rs) (Reported) 18.5 19.5 (5.2) 22.2 21.9 1.4 26.1 25.6 2.0 EPS (Rs) (Adjusted) 19.9 20.9 (4.8) 23.7 23.4 1.3 27.5 27.0 1.9 Source: Company, HDFC sec Inst Research

KPIs 3QFY19 2QFY20 3QFY20 YoY (%) QoQ (%) 3QFY20E Variance (%) Store (#) EBOs 521 568 586 12.5 3.2 LFS 1,573 1,774 1,889 20.1 6.5 MBOs 1,496 1,273 1,134 (24.2) (10.9) Total 3,590 3,615 3,609 0.5 (0.2) SSSG (%) 8 0.1 2 (75.0) 1,900.0 Operating Expenses (Rs mn) Employee expenses 379 407 415 9.6 2.1 413 0.5 Rent expenses 282 310 311 10.1 0.3 317 (2.0) Selling and distribution 627 700 758 21.0 8.3 699 8.4 Other expenses 261 267 320 22.6 19.9 286 12.0

TCNS :RESULTS REVIEW 3QFY20

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Assumptions FY14 FY15 FY16 FY17 FY18 FY18 (IND-AS 115) FY19E FY20E FY21E FY22E Total revenue (Rs. Mn)

W 1,967 3,214 4,400 4,856 4,856 6,835 Aurelia 765 1,270 2,181 2,837 2,837 3,896 Wishful 221 374 605 731 731 750

SSSG (%) 27.3 8.5 8.0 8.0 (3.4) Channel-wise revenue EBOs 887 1,502 2,559 3,415 4,184 4,184 4,707 5,274 5,863 6,581 YoY (%) 69.4 70.4 33.4 22.5 22.5 12.5 12.0 11.2 12.3 Revenue per EBO 6.4 8.4 9.0 9.0 9.0 8.7 8.8 8.7 8.9 LFS 485 840 1,480 2,085 2,336 3,922 4,477 5,126 5,723 6,230 YoY (%) 73.3 76.3 40.9 12.1 88.1 14.2 14.5 11.6 8.9 Revenuer per LFS 1.5 1.9 2.1 1.6 2.7 2.8 2.8 2.9 2.9 MBOs 177 274 453 801 931 931 918 505 581 656 YoY (%) 55.0 65.4 76.9 16.2 16.2 (1.3) (45.0) 15.0 13.0 Revenue per MBO 0.4 0.5 0.7 0.6 0.6 0.6 0.4 0.4 0.4 Online 148 394 329 719 847 847 1,263 1,515 1,894 2,368 YoY (%) 166.5 (16.5) 118.4 17.8 17.8 49.1 20.0 25.0 25.0 Others 39 90 126 126 115 121 127 133 YoY (%) 129.4 39.9 39.9 (9.2) 5.0 5.0 5.0

Store Count (#) EBOs 235 305 381 465 465 541 599 671 743 LFS 565 794 991 1,469 1,469 1,623 1,823 1,983 2,153 MBOs 748 960 1,109 1,522 1,522 1,428 1,300 1,400 1,500 Gross Margin (%) 54.3 57.4 61.2 62.9 59.7 65.7 66.0 65.4 65.4 65.3 EBITDA margin (%) 12.7 17.0 (0.8) 10.9 18.5 15.6 15.4 13.0 13.5 14.0 Source: Company, HDFC sec Inst Research

TCNS: RESULTS REVIEW 3QFY20

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Income Statement Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 9,971 11,480 12,540 14,187 15,968 Growth (%) 18.9 15.1 9.2 13.1 12.6 COGS 3,425 3,899 4,335 4,911 5,535 Selling and distribution 1,717 2,388 2,783 3,137 3,443 Employee Expense 1,021 1,274 1,515 1,668 1,891 ESOPs 215 164 83 75 70 Rent Expense 938 1,099 1,210 1,369 1,533 Other Expenses 1,100 887 982 1,117 1,266 Reported EBITDA 1,554 1,768 1,633 1,910 2,229 Adjusted EBITDA - adjusted for ESOPs 1,770 1,932 1,716 1,985 2,299

Adj EBITDA Growth (%) 18.0 9.2 (11.2) 15.7 15.8 Reported EBITDA Margin (%) 15.6 15.4 13.0 13.5 14.0 Adjusted EBITDA Margin (%) 17.8 16.8 13.7 14.0 14.4 Depreciation 167 222 238 251 285 Reported EBIT 1,388 1,546 1,395 1,659 1,944 Adjusted EBIT 1,603 1,710 1,478 1,734 2,014 Other Income (Including EO Items) 67 75 200 270 317

Interest 7 5 10 10 10 PBT 1,448 1,616 1,585 1,919 2,251 Total Tax 467 302 399 483 567 RPAT 981 1,314 1,186 1,436 1,685 Exceptional Gain/(loss) - - - - - Adjusted PAT (adj for ESOP) 1,196 1,478 1,269 1,511 1,755 APAT Growth (%) (0.0) 23.6 (14.2) 19.0 16.2 Adjusted EPS (Rs) 21.2 23.2 19.8 23.4 27.2 EPS Growth (%) (0.0) 9.2 (14.7) 18.3 16.2

Source: Company, HDFC sec Inst Research

Balance Sheet Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital - Equity 113 123 128 129 129 Reserves 4,202 6,063 7,268 8,742 9,882 Total Shareholders Funds 4,315 6,186 7,396 8,871 10,012 Preference Share - - - - - Long Term Debt 2 - - - - Short Term Debt 1 - - - - Total Debt 3 - - - - Net Deferred Taxes (115) (160) (160) (160) (160) Other Non-current Liabilities & Provns 63 66 66 66 66

TOTAL SOURCES OF FUNDS 4,266 6,092 7,302 8,778 9,918 APPLICATION OF FUNDS Net Block 575 592 711 894 1,022 CWIP 25 3 3 3 3 Other Non-current Assets 198 208 208 208 208 Total Non-current Assets 798 804 922 1,105 1,234 Inventories 2,239 2,741 2,960 3,310 3,681 Debtors 1,571 1,807 1,957 2,195 2,426 Other Current Assets 735 739 721 785 848 Cash & Equivalents 512 1,608 2,498 3,370 3,964 Total Current Assets 5,057 6,896 8,136 9,658 10,920 Creditors 1,144 1,150 1,256 1,421 1,600 Other Current Liabilities & Provns 444 457 499 565 636 Total Current Liabilities 1,588 1,607 1,756 1,986 2,236 Net Current Assets 3,468 5,288 6,381 7,672 8,685 TOTAL APPLICATION OF FUNDS 4,266 6,092 7,302 8,778 9,918

Source: Company, HDFC sec Inst Research

TCNS: RESULTS REVIEW 3QFY20

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Cash Flow Statement Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E Reported PBT 981 1,616 1,585 1,919 2,251 Non-operating & EO Items 683 157 (200) (270) (317) Interest Expenses 7 5 10 10 10 Depreciation 167 222 238 251 285 Working Capital Change (971) (778) (202) (420) (418) Tax Paid (452) (323) (399) (483) (567) OPERATING CASH FLOW ( a ) 413 899 1,032 1,007 1,245 Capex (274) (237) (356) (435) (413) Free Cash Flow (FCF) 140 662 676 572 832 Investments (14) (1,250) (300) (500) (300) Non-operating Income 12 53 200 270 317 INVESTING CASH FLOW ( b ) (276) (1,434) (456) (665) (396) Debt Issuance/(Repaid) (86) (1) - - - FCFE 54 662 676 572 832 Share Capital Issuance 302 389 39 39 - Dividend - - - - (544) Others (7) (5) (10) (10) (10) FINANCING CASH FLOW ( c ) 210 383 29 29 (554) NET CASH FLOW (a+b+c) 347 (151) 605 371 295 EO Items, Others - - - - - Closing Cash & Equivalents 367 216 821 1,192 1,487

Source: Company, HDFC sec Inst Research

Key Ratios FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 65.7 66.0 66.0 65.4 65.4 EBITDA Margin 17.8 16.8 13.7 14.0 14.4 EBIT Margin 16.1 14.9 11.8 12.2 12.6 APAT Margin 12.0 12.9 10.1 10.6 11.0 RoE 27.7 28.2 18.7 18.6 18.6 RoIC (or Core RoCE) 28.9 33.8 23.8 25.4 26.5 RoCE 28.2 28.6 19.1 18.9 18.9 EFFICIENCY Tax Rate (%) 32.3 18.7 25.2 25.2 25.2 Fixed Asset Turnover (x) 13.1 12.7 10.0 8.4 7.6 Inventory (days) 82 87 86 85 84 Debtors (days) 57 57 57 56 55 Other Current Assets (days) 27 24 21 20 19 Payables (days) 42 37 37 37 37 Other Current Liab & Provns (days) 16 15 15 15 15 Cash Conversion Cycle (days) 108 117 113 111 108 Net D/E (x) (0.1) (0.3) (0.3) (0.4) (0.4) Interest Coverage (x) 206.8 300.8 139.5 165.9 194.4 PER SHARE DATA (Rs) EPS 21.2 23.2 19.8 23.4 27.2 CEPS 24.2 26.6 23.5 27.3 31.6 Dividend - - - - - Book Value 76.5 96.9 115.2 137.3 155.0 VALUATION P/E (x) 27.4 25.1 29.4 24.9 21.4 P/BV (x) 7.6 6.0 5.0 4.2 3.8 EV/EBITDA (x) 22.6 19.3 20.3 16.9 14.2 EV/Revenues (x) 3.5 3.0 2.6 2.3 2.0 OCF/EV (%) 1.2 2.6 3.1 3.1 3.9 FCF/EV (%) 0.4 1.9 2.0 1.8 2.6 FCFE/Mkt Cap (%) 0.2 1.9 1.9 1.6 2.3 Dividend Yield (%) - - - - -

Source: Company, HDFC sec Inst Research

TCNS: RESULTS REVIEW 3QFY20

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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Dec-19 674 BUY 770 12-Jan-20 602 BUY 670 9-Feb-20 585 BUY 670

500

550

600

650

700

750

800

850

900

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

Oct

-19

Nov-

19

Dec-

19

Jan-

20

Feb-

20

TCNS TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

TCNS: RESULTS REVIEW 3QFY20

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