IPO-Note
Monte Carlo Fashions Limited
Rs. 630 - Rs. 645 Per Equity Share
Recommendation: Subscribe(Risky) Subscribe
Issue Details
Objects of the issue
The objects of the Issue are to: 1. To achieve the benefits of listing the equity shares on the stock exchanges and 2. To sale of 5,433,016 Equity Shares by the Selling Shareholders.
Offer
5,433,016 Equity Shares of Rs. 10
Issue Size
Rs. 342.28 - 350.43 Crore
Face value
Rs. 10 Per Equity Share
Issue Price
Rs. 630 - Rs. 645 Per Equity Share
Market Lot
23 Shares
Minimum Order Quantity
23 Shares
Listing at
BSE, NSE
Issue Opens:
Dec 3, 2014 - Dec 5, 2014
QIB
Not less than 2,716,507 Equity Shares - 50% of Net Issue Offer Not less than 814,953 Equity Shares - 15% of Net Issue Offer Not less than 1,901,556 Equity Shares - 35% of Net Issue Offer
NIB
Retail
Incorporated in 1984, Monte Carlo Fashions Limited is the leading apparel brand in India; especially famous for exclusive woolen brand 'Monte Carlo'. Monte Carlo operates 2 manufacturing facilities in Ludhiana, one for woolen apparel products and one for its cotton apparel products. Company cater to the premium and mid-premium premium branded apparel segment for men, women and kids, offering a comprehensive line of woolen, cotton and cotton-blended blended knitted and woven apparel and home furnishings through 'Monte Carlo arlo Exclusive Brand Outlets' and multi brand outlets, including a network of national chain stores under the 'Monte Carlo' brand. Company’s Promoters are Mr. Jawahar Lal Oswal, Mr. Kamal Oswal, Mr. Dinesh Oswal, Ms. Monica Oswal, Ms. Ruchika Oswal, SMCL and SSCL.
Key Highlights: •
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‘Monte Carlo’ is the flagship brand of Company with a portfolio of woollen apparel and cotton and cotton blended apparel. As per the Technopak Report, 2014, company is the leading woollen knitted apparel brand in India in the premium and mid-premium segment. Company is also one of the leading retailers of branded apparel in India in terms of revenue, according to the Technopak Report, 2014. According to the company customers associate the ‘Monte Carlo’ brand with high quality premium and mid-premium mid apparel that incorporates quality materials, modern fashion and comfort. Company has introduced different ranges for different segments in the apparel industry under the umbrella rella ‘Monte Carlo’ brand. For example, ‘Platine’ is premium range for men, ‘Denim’ is exclusive range for denim apparel, ‘Alpha’ is exclusive range for women and ‘Tweens’ is exclusive range for kids. kids Company distribute its apparel products through ‘Monte Carlo Exclusive Brand Outlets’ and MBOs, including a network of national chain stores. As of March 31, 2014, the Company retailed its products through more than 1,300 outlets on a pan India basis. Out of the 191 ‘Monte Carlo Exclusive Brand Outlets’ in India as of March 31, 2014, 17 are owned and operated by Company and the rest are operated by different franchisees. It has 77 ‘Monte Carlo Exclusive Brand Outlets’ in the northern region of India, 42 ‘Monte Carlo Exclusive Brand Outlets’ in the eastern region, regi 57 ‘Monte Carlo Exclusive Brand Outlets’ in the central region, 11 ‘Monte Carlo Exclusive Brand Outlets’ in the western region and 4 ‘Monte Carlo Exclusive Brand Outlets’ in the southern region of India. The ‘Monte Carlo’ brand was launched by OWML, one on of Group Companies, which has been engaged in spinning of woollen and cotton yarn, weaving denim fabric and manufacture of apparel. With effect from April 1, 2011, the apparel business of OWML under the brand ‘Monte Carlo’ were demerged into the Company in order to increase management focus on the branded apparel business. Company believe that association with OWML and other Group Companies helps it to procure and maintain consistent high quality of yarn for woollen apparel and also ensures that minimize any significant volatility, uncertainty or delay in raw material availability or third party manufacturing. Source:RHP
Company has been recognized as a ‘Superbrand’ for woollen knitted apparel in each edition of Consumer Superbrands India since its first edition in September 2004. Name
Segment description
Products description
Monte Carlo
‘Monte Carlo’ is flagship and umbrella brand. ‘Monte Carlo’ caters to the premium and mid-premium segments for men
Woollen and blended-woollen sweaters, woollen woven jackets, cotton and cotton-blended shirts, trousers, t-shirts, track-suits, thermals, woollen accessories and home furnishings Cashmere and cash-woollen sweaters, blazers, coats, cotton shirts and t-shirts
Platine
‘Platine’ is premium range for men under the ‘Monte Carlo’ brand
Denim
‘Denim’ is exclusive midpremium range for denim apparel under the ‘Monte Carlo’ brand
Denim trousers (jeans), shirts and jackets
Alpha
Alpha’ is exclusive range for women under the ‘Monte Carlo’ brand
Sweaters, cardigans, shirts, t-shirts, tops and trousers
Tweens
‘Tweens’ is exclusive range for the kids wear collection under the ‘Monte Carlo’ brand
Sweaters, cardigans, shirts, t-shirts and bottoms
Cloak & Decker
‘Cloak & Decker’ is economy range for men under the ‘Monte Carlo’ brand
Cotton and cotton-blended t-shirts
Source:RHP
Company’s Strategies Continue to focus on the growth of its cotton and cotton-blended apparel to establish pan-India presence The ‘Monte Carlo’ brand has historically been associated with winter-wear for its woollen knitted apparel. This has led to company’s strong presence in the northern and eastern regions of India. In order to position ‘Monte Carlo’ as an all-season panIndia brand, company introduced cotton t-shirts under the ‘Monte Carlo’ brand in 2002 and other cotton and cotton-blended apparel in 2006. Strengthen its sales network by opening ‘Monte Carlo Exclusive Brand Outlets’ Monte Carlo distribute its portfolio of products through ‘Monte Carlo Exclusive Brand Outlets’ and MBOs, including a network of national chain stores. While company intend to continue its expansion in tier-I cities in north India, they also seek to focus on the tier-II cities in north, east and central India and tier-I cities of south and west India by opening additional ‘Monte Carlo Exclusive Brand Outlets’. Focus on expansion of kids wear under the ‘Tweens’ range According to the Technopak Report, 2014, the kids apparel industry segment is expected to grow at a CAGR of 10.50% from an estimated US$ 8,222 million in 2013 to US$ 22,369 million in 2023 in India. In order to capitalize on the growth opportunities in the kids wear segment, company has recently launched its kids wear range ‘Tweens’ under the ‘Monte Carlo’ brand. Expand manufacturing capacity Company seek to enhance its manufacturing capacity for cotton apparel in Ludhiana which was started in April 2014 and increase inhouse manufacturing of cotton and cotton-blended t-shirts and thermals. Company believe that leading presence in the Indian branded apparel industry presents us with a significant advantage to benefit from the future growth opportunities in the branded apparel industry in India by continuing to expand its manufacturing capacity. Continue to enhance its brand in the apparel industry Monte Carlo will continue to increase brand awareness and customer loyalty through marketing efforts and planned retail expansion. They seek to seize market opportunities by continuing to allocate significant resources to enhance its brand ‘Monte
Carlo’. Its marketing plan includes advertising in print media, electronic advertising, television campaigns, social media, endorsements by well-known Indian personalities who also participate in its fashion shows, visual merchandising including revamped stores and strategic association with movies. Expansion through acquisition of a brand or business in the apparel industry Going forward, company believe that strategic investments and acquisitions of businesses in the apparel industry may act as an enabler of growing its business.
Industry Overview Developed countries like the USA, countries of the European Union and Japan have emerged as consuming countries while developing countries like India, China and Bangladesh are producing countries. Cheap labour is one of the most important factors driving the developing countries to gain production advantage. According to the Technopak Report, 2014,the expected slower annual GDP growth (CAGR 2013 to 2018 is 2.4%) in the advanced economies is directly impacting the consumption of textile and apparel, hence reducing its demand. On the other hand, the expected higher annual GDP growth (CAGR 2013 to 2018 is 5.4%) of the developing countries has led to an increase in purchasing power of consumers, favouring the growth in textile and apparel consumption in these countries. India is one of the largest exporters of textiles and apparel. India also has vertically integrated supply chain and is known for producing wide range of textiles and apparel products. In India’s exports of textiles and apparel, 60% contribution comes from apparel, and 40% from textiles. (Source: Technopak Report, 2014)
Risks • •
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If company is unable to maintain and enhance the ‘Monte Carlo’ brand, the sales of products will suffer which would have a material adverse effect on results of operations growth plans. Monte Carlos business is subject to seasonality, with a significant portion of revenue generated primarily during the third quarter of each fiscal year. Lower revenues generated during the third quarter of a particular fiscal year may result in a material adverse effect on the operations and business of the Company. Company’s limited operating experience, limited brand recognition in new markets and limited brand recognition as a warmweather apparel brand in the apparel industry may limit its expansion strategy and cause business and growth to suffer. Cost of production is exposed to fluctuations in the prices of woollen yarn and cotton fabric as well as its unavailability. Company operate in a highly competitive environment and may not be able to maintain its market position, which may adversely impact business, results of operations and financial condition. Certain of the Group Companies have incurred losses in previous financial years. Source: RHP
Top Five Group Companies Nahar Spinning Mills Limited
Nahar Industrial Enterprises Limited
NSML was incorporated on December 16, 1980 under the Companies Act 1956. The registered office of NSML is situated at 373, Industrial Area A, Ludhiana 141 003, Punjab, India. NIEL was incorporated on September 27, 1983 under the Companies Act 1956 as “Oswal Fats and Oils
Nahar Capital and Financial Services Limited
Nahar Poly Films Limited
Kovalam Investment and Trading Company Limited
Limited” and received a fresh certificate of incorporation consequent on change of name on October 21, 1994 for changing its name to “Nahar Industrial Enterprises Limited”. NCFSL was incorporated on March 31, 2006 under the Companies es Act 1956. The registered office of NCFSL is situated at 375, Industrial Area A, Ludhiana 141 003, Punjab, India. NCFSL is currently engaged in investment activities and development of real estate. NPFL was incorporated on November 11, 1988 as “Nahar Exports Limited” under the Companies Act 1956 and a fresh certificate of incorporation consequent upon change of name was issued on June 23, 2008 for changing its name to “Nahar Poly Films Limited”. NPFL is currently engaged in the business of manufacture of packaging material, including bi-axially axially oriented polypropylene films. KITCL was incorporated on November 28, 1981 under the Companies Act 1956. The registered office of KITCL is situated at G.T. Road, Premises OWML, Sherpur, Ludhiana 141 003, Punjab, India. KITCL is currently engaged in investment and lending activities.
Shareholding Pattern Promoter Mr. Jawahar Lal Oswal Mr. Kamal Oswal Mr. Dinesh Oswal Ms. Monica Oswal Ms. Ruchika Oswal SMCL SSCL Total
PreOffer(%) 3.77
PostOffer(%) 0.5
0.9 2.55 0.01 0.01 20.26 20.26 47.76
0.5 0.5 0.01 0.01 20.26 20.26 42.04
In June 2012, Samara Capital, a Mauritius based India focused private equity firm, through its affiliate, KIL, acquired a stake in Company and currently holds 18.51% of the pre pre-Offer Offer capital of Company(post offer KIL would retain 10.94 per cent stake in the company).
Financial Overview Particulars Net Sales Expenditure EBITDA
FY12
FY13 372.17 290.33 81.84
FY14 404.44 333.49 70.95
Q1FY15 503.73 409.61 94.12
74.77 56.74 18.03
EBITDA margins Other income Depreciation EBIT EBIT margin Interest PBT Tax PAT Equity Capital Researves & Surplus Equity Shares Adjusted EPS
21.99% 3.21 5.95 79.11 21.26% 6.54 72.57 23.12 49.4 18.86 131.91 1.8859 26.22
17.54% 12.02 6.82 76.15 18.83% 3.69 72.46 22.44 48.9 21.73 302.94 2.1732 23.02
18.69% 15.16 16.21 93.08 18.48% 9.32 83.76 28.45 55.3 21.73 358.24 2.1732 25.45
24.11% 4.46 6.59 15.9 21.27% 3.1 12.8 4.28 8.52 21.73 366.49 2.1732 3.92 Source:RHP
Outlook: ‘Monte Carlo’ has been recognized as a ‘Superbrand’ for woollen knitted apparel in each edition of Consumer Superbrands India since its first edition in September 2004.In fiscal 2014, fiscal 2013 and fiscal 2012, company generated total revenue of Rs 5,188.92 million, Rs 4,164.59 million and Rs 3,753.84 million, respectively, and net profit after tax of Rs 553.80 million, Rs 494.81 million and Rs 488.57 million, respectively. Company has been able to increase its total revenue from fiscal 2012 to fiscal 2014 at a compound annual growth rate of 17.57% and its profit after tax has increased at a compound annual growth rate of 6.47% over the same period. Company’s Promoters are Mr. Jawahar Lal Oswal, Mr. Kamal Oswal, Mr. Dinesh Oswal, Ms. Monica Oswal, Ms. Ruchika Oswal, SMCL and SSCL. In June 2012, Samara Capital, a Mauritius based India focused private equity firm, through its affiliate, KIL, acquired a stake in Company and currently holds 18.51% of the pre-Offer capital of Company(post offer KIL would retain 10.94 per cent stake in the company). Monte Carlo will bring the issue at price band of Rs.630-645 at price-earnings multiple of 24.75-25.35 on post issue EPS of Rs.25.45.Some peer group companies enjoy a better multiple.Company has a ROE of 14.55 and has cash balance of Rs 116cr as on June 2014 in comparison to 82.1 cr as on March 2014. Reported profit for June quarter was Rs 85.18 million, which is not comparable on QoQ basis as being a seasonal business, second Half of the year should be better than H1. Hence going forward only aggressive investors should “Subscribe” the issue, for listing gains.
Disclaimer;The recommendation made herein does not constitute an offer to sell or a solicitation to buy any of the securities mentioned. Readers using the information contained herein are solely responsible for their actions. The information and views contained herein are believed to be reliable but no responsibility or liability is accepted for errors of act or opinion. Analysts may or may not have trading or investment positions in the securities mentioned herein.