Aditya Birla leads race to acquire TCNS stake

Mint had reported that suitors, including Reliance Retail, Nykaa, ABFRL, and Trent, besides private equity investors TPG Capital, have shown interest in picking up a controlling stake in the firm.

“Aditya Birla is in advanced talks to acquire a 51% stake in TCNS Clothing, which includes private equity investor TA Associates’ 29% stake, a part of the promoter stake, and from the public in a subsequent open offer. The current professional management will continue to drive the company, and the promoters will also continue with their remaining stake,” one of the two people cited above said, seeking anonymity.

The deal will be a mix of stock and cash, and is likely to be signed and announced soon, he added.

“The transaction will provide Aditya Birla Fashion access to a strong portfolio of women’s wear brands with a strong distribution network,” he added.

TA Associates holds a 29.24% stake in the company, while promoters hold 32%.

TA Associates picked up a 40% stake in TCNS in 2016 in a $140 million investment round. The private equity firm sold a part of its stake in the company’s IPO in 2018.

At the current market cap, a 51% stake in TCNS Clothing is worth nearly ₹1,746 crore.

“Given TCNS’ leading position in the women’s wear segment, wide presence in the market, its strong brands and its expansion into other categories beyond apparel, there is a strong interest among strategists to explore this transaction,” the second person cited above said, also seeking anonymity.

Emails and text messages sent to TCNS managing director Anant Daga did not elicit any response. Emails to spokespeople for ABFRL and TA Associates, too, went unanswered.

TCNS Clothing reported a 46% growth in revenue in the September quarter from a year ago to ₹350.5 crore.

However, operating profit grew by just 6% to ₹47.9 crore, while net profit declined 31% to ₹7.6 crore.

“TCNS’ Q2 Ebitda (earnings before interest, taxes, depreciation, and amortization) was about 17% lower than the street and our estimates, led by nearly 300 bps miss on the margins front. Lower margins were led by higher marketing and growth investments, which are expected to continue. In Q3 (festive sales), the Aurelia brand has returned to pre-covid levels on a like-to-like (LTL) basis, but recovery for the W brand is lagging due to slower traction in certain styles (fabric issue). Ongoing festive recovery is slower versus our expectations of about 15% LTL growth (versus pre-covid levels) across channels, leading to a nearly 10% cut in our FY23 revenue estimates. Our FY24E revenue estimates factor in nearly 8% LTL growth versus pre-covid, which seems fair given the introduction of accessories and price hikes,” brokerage Emkay Global said in a 12 November report.