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 womenswear brands W and Aurelia, two people aware of the development said.
The talks may also see the company’s promoters sell all or 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 investors and PEs are looking at the TA Associates stake. The promoters are also likely to sell their stake but will prefer to sell to a strategic investor if the valuation on offer is attractive, otherwise they might consider continuing with another new private equity investor,” one of the two people said.
Investor interest in apparel makers has increased with the easing of the pandemic as people update their wardrobes for returning to the office, going on vacation and partying after living through most of the pandemic with casual wear.
Shares of TCNS Clothing fell 0.89% on Tuesday. ₹557.05 on the BSE, while the benchmark Sensex gained 0.4% to 62,872.99.
TA Associates’ stake in TCNS Clothing at current share prices is almost worth it ₹1,000 million The purchase of TA Associates’ entire stake will also trigger an open offer to buy an additional 26% public stake in the apparel maker. TA Associates bought a 40% stake in TCNS in 2016 for $140 million, but the private equity firm sold part of its stake at the company’s initial stock price in 2018.
TCNS’ portfolio 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 during the September quarter, respectively.
“Given TCNS’s leadership position in the women’s apparel segment, its broad market presence, its strong brands and the company’s expansion into other categories beyond apparel, there is strong interest among the strategies to explore this transaction,” the first person said.
Mails sent to the spokespersons of Reliance Retail, Trent, Nykaa and Aditya Birla Fashion and Retail also went unanswered. Spokesmen for TPG Capital and Advent declined to comment.
“The company does not have any information about the appointment of any investment bank by its promoters in relation to the sale of shares in the company, and the company does not comment on any market speculation. The company continues to evaluate various opportunities on an ongoing basis and, as and when any event becomes a notifiable event, informs the stock exchanges in accordance with the applicable provisions of the applicable Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015,” TCNS. he said in a statement
TCNS Clothing’s revenue rose 46% in the September quarter ₹350.5 million from a year ago. However, operating profit grew by only 6%. ₹47.9 million and the net profit was reduced by 31%. ₹7.6 million.
“Lower margins were led by higher investments in marketing/growth, which are expected to continue. For Q3 (holiday sales), the Aurelia brand has returned to pre-covid levels on a like-to-like (LTL) basis, but the recovery of the W brand is lagging due to slower traction in certain styles (fabric issue),” brokerage Emkay Global. said in a Nov. 12 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 drive growth.
“With a slower ethnic recovery and lost margin, we downgrade our rating to ‘hold’ with a revised target price of ₹630 (vs ₹800 before). Slower store addition is a potential downside risk. Stronger traction at lower wear brand Elleven and faster SSG/margin improvement remain potential upside risks,” he added.
Discover all the corporate news and updates on Live Mint. Download Mint News app for daily market updates and live trade news.