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TCNS: Recovery rate increasing gradually

News: TCNS reported steady revenue recovery with recovery rate reaching ~75% of pre-covid levels in Q2FY22. On a favourable base, revenue grew 66% YoY to Rs.239.3 crore. Company reported healthy gross margin expansion of 1110 bps YoY to 62.7% on account of favourable channel mix and lower inventory dormancy provisioning. Subsequently, company recorded EBITDA of Rs.30.2 crore vs. loss of Rs.16.3 crore in Q2FY21. Net profit stood at Rs. 11.1 crore vs. net loss of Rs.11.1 crore. 

Views: The revenue recovery rate appears to be subdued as compared to other apparel retailers mainly on account of slower pick-up in demand for ethnic-wear category. However, during the festive season, TCNS has witnessed healthy recovery and the management is confident of achieving pre-covid levels in H2FY22. TCNS is following a twin approach for reviving growth. It has enhanced focus on online business which has grown by 20% over last year and also it is planning a calibrated offline expansion (60+ stores in FY22E). The company has enhanced focus on expanding network in Tier III/IV cities through asset light franchisee model. Also the company is focussing on cash conservation and has cash reserves of Rs.160 crore v/s Rs.110 crore in Q2FY21. The company’s strong brand equity and healthy balance sheet will enable it to tide over the current uncertain demand scenario and recover faster than smaller peers.