Epic research monte carlo ipo by epicresearch

IPO REPORT

Monte Carlo Fashions Ltd. Dresses up for Hot Markets

Monte Carlo Fashions Ltd 1-Dec-14

Stock Recommendation Rating

Issue opens

3-Dec-14

Issue Closes

5-Dec-14

Price band (Rs)

630-645

Potential Upside

25-30%



One of India’s leading woolen apparel brand, Monte Carlo Fashions Ltd (MCFL) was launched in 1984, as an exclusive woolen brand by parent company “Oswal Woolen Mills limited (OWML)”. Company was engaged in spinning of woolen, cotton and other blended yarns and is now recognized as a ‘Superbrand’ for woolen knitted apparel in each edition of consumer super-brands India. Mauritius based private equity firm acquired a stake in Monte Carlo in June 2012. Samara Capital currently holds 18.51 % of the pre-offer capital of the company. MCFL distributes its products through ’Monte Carlo Exclusive Brand Outlets’ in various parts of country (196 as on June 14’) and caters in premium and mid-premium branded apparel segment for men, women and kids. Launching of IPO in the winter season will help company take advantage of the seasonal effect along with stock markets on a roll.

Issue Details Face Value (Rs)

Issue Size (Rs Cr)

350

Industry

Clothing

Lot Size

23 shares

About the company “Monte Carlo Fashions Ltd”



Issue Objective 

To achieve the benefits of listing the Equity Shares on Stock Exchange and for the sale of 5,433,016 equity shares by the selling shareholders



Listing the shares on exchange will increase the brand image and transparency to the precious customers along with providing liquidity to the subscribing shareholders

Shareholding Pattern Pre IPO %

Post IPO %

Promoter

81.06

63.63

Samara Cap

18.51

10.94

Others/ Public

0.43

25.43

Being an ‘offer for sale’ the company will not receive any funds raised by IPO and all proceeds will to in the hands of shareholders. Company being a cyclical one, the sales is bound to vary with the market scenario. 

Our Recommendation: “SUBSCRIBE for listing gains”

Share reservation (%) QIB

Non institutional

Retail

Issue Manager BRLM

Registrar Listing

SBI Capital Market, Axis Capital, Edelweiss, Religare Link Intime India BSE, NSE

Analyst’s Romil Jain rojain@epicresearch.co Jayesh Tare jtare@epicresearch.co

For the above lower and upper price band of Rs 630-645, the P/E stands at 24.73x and 25.31x which is less as per industry standard (average P/E 28x), hence we believe that the company’s IPO listing would be a success and investors would benefit from healthy listing gains. High Debt/Equity ratio of 0.24 is a concern, followed by decrease in Cash in hand worries a bit, we believe the company’s precious brand value and venture in new segments, along with strong fundamentals will prove to outperform peers and make a grand entry in the already heated up Stock Market. We recommend to SUBSCRIBE. Financial Performance Y/E March (Rs Cr) Revenue YoY % EBITDA Margin % PAT Margin % EPS (Rs) ROE % ROCE % BVPS

FY12 375.4 NM 85.1 22.7% 48.9 13.0% 26.92 32.5% 39.5% 69

FY13 416.5 10.9% 83.0 19.9% 49.5 11.9% 23.33 15.2% 19.7% 149

FY14 518.9 24.6% 109.4 21.1% 55.4 10.7% 25.48 14.6% 20.3% 175

Q1FY15 74.8 18.0 24.1% 8.5 11.4% 3.92 2.4% 11.3% 179

Source: Company RHP, Epic research Fundamental Report By Epic Research

Please refer to disclosures at the end of this report

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Why Should you SUBSCRIBE to this IPO? Monte Carlo brand is famous for its comfort fabric and designs As per Technopak Report, 2014, MCFL is the leading woolen knitted apparel brand in India in the Age old name and firm roots in premium and mid-premium segment. Monte Carlo being the flagship brand of the company, has the history of Woolen helped place company as one of the top retailers of branded apparel in India. Company successfully apparels, provides a rational launched many segments under Monte Carlo to cater needs of every age groups. For eg ‘Platine’ is for investment premium range for men, ‘Denim’ is exclusively for denim apparels, ‘Alpha’ exclusively for women and ‘Tweens’ for kids. Integrated marketing and customer relation and merchandising strategy helped to intervene new areas. Vast geographical distribution and marketing keeps company in good position Vast distribution and access to every house hold makes it hot favorite

Distribution done mainly through MBO and Exclusive Outlets helps company maintain its high status. Fashion stores are present in various parts of country totals 1300 outlets on pan India basis. Company has 77 brand outlets in Northern region; 42 in Eastern regions; 57 in Central region; 11 in Western region and 4 in Southern region. Company also entered into distribution agreements with some of India’s leading digital commerce for sale of their products and easy availability of clothes. The company also plans to increase the no of MBO and exclusive Outlets to 250 in coming years. With little market capture in Southern region where company hopes to launch many other stores. Demand in south had been low owing to warm climatic conditions. However, with the new cotton garments facility, company is sure to capture more of southern market with exclusive designs and quality material. In-House designs and manufacturing makes it self-sufficient

Exhaustive market surveys helps to bring latest fashion and trends in apparels

Company enjoys a competitive advantage being self-sufficient in in-house and design team, dedicated manufacturing facilities for woolen and cotton apparel along with long term relationship with third party manufacturers. Dedicated design team ensures that fresh and trendy designs suitable to the minds of people are in market along with a close eye on the emerging trends. With continuous market surveys through dealers, retailers and dedication, people’s mind is captured on clothes and presented in handy. Almost all manufacturing is done in the facilities owned by the company while for other products, they follow asset light model by outsourcing the production to a network of jobs. Diversified product range for warmth and make a fashion statement to all sections of society

Provide variety of apparels for every occasion

Company provides a vast portfolio of product offerings in the woolen, cotton and cotton-blended apparel. With this portfolio the company manages to penetrate even the niche areas apart from metros and Tier I and II cities in India. Products are priced such that they are accessible to the every economical class while still maintaining profit margins (10-15%). Their winter collection includes sweaters, cardigans, jackets, blazers, suits, shawls and stoles whereas, non-winter collection includes shirts, trousers, t-shirts, cargos, linen apparel and denims. MCFL also launched a home furnishing range which includes mink blankets, bed sheets and quilts. Additionally, they sell thermal wear and other winter accessories including scarves, mufflers and woolen caps in ‘Monte Carlo Exclusive Brand Outlets. With the GDP growth back on track, consumer spending is sure to increase along with winter season on the verge.

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INDUSTRY OVERVIEW Textile and apparel industry has been a major contributor of India’s GDP along with employing more Scope for multi billion industry than 35 million people. The industry is crucial in terms of industrial production and foreign with a CAGR of over 11% in exchange. Easy availability of raw materials as cotton, wool, silk and jute along with skilled worknext 10 years force makes our country eye-widening for many. As of 2013, India’s textile market reached US$ 59 billion while the total export market was at US$ 36 billion. India’s Textile industry has been growing with a CAGS of 9% and is expected to grow rate of 11% at the same rate with total market. Geographical Distribution decides the nature of growth for the sector

Economies of scale forms single major factor to churn portfolio

Change in seasonality affects the apparel industry. Winter season leads to more sales of apparel. While the winters are strong in northern part of the country, they are scanty in south and western region. Metro cities top the list with majority of them going for branded wear, with fine quality and style, other Tier I and II cities are economical and are basically need based than style based. The need of clothing vary from economies of scale for people in metros where style if their status quo. The rural and rest urban sector is much deprived of brands and is mainly unorganized by khaadi and other low quality material.

Geographical Distribution of Woolen Industry in India

Region wise Distribution of Apparel Industry

Source: Technopak Report, Epic Research

India’s Woolen Apparel Industry fragmented to branded and unbranded Players Industry demands for a more organized way to channel investments

India’s textile industry has been divided into branded and unbranded players which pose problem to players especially in winters. The ratio is 70:30 with 70% players from unbranded sector. Common people are still far from reach of branded because winters are for 3-4 months only. However, with new designs and new pricing being brought up by the branded players, the companies are luring the customers to try new apparels keeping fashion in mind. Online shopping provides easy access to new brands as well high street showrooms will attract the crowd.

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Company Profile

Its the way you make me feel..........Monte Carlo ! giving comfort to India since inception

Extensive clothing portfolio for with immense variety and designs, blended with comfort and style

Monte Carlo Fashions Ltd (MCFL) was incorporated on July 1, 2008 in Ludhiana, Punjab under the Indian Companies Act, 1956 as a subsidiary of OWML. MCFL is India’s leading woolen apparel manufacturer and has been recognized as “Superbrand” for woolen knitted apparel in each section. MCFL caters to need of consumers for premium and mid-premium winter wears in northern and eastern regions. Company has under its kitty two manufacturing units located in Ludhiana, one for woolen and other for cotton apparels. Manufacturing Facilities include facilities for product development, design studio and sampling infrastructure. All woolen and cotton knitted apparels are manufactured in-house with newly started in-house especially for t-shirts and thermal wear in April, 2014. Company follows an asset-light model by outsourcing the production to a network of third party manufacturers. MCFL distributes its wide range of collection through ‘Monte Carlo Exclusive Brand Outlets’ and Monte Carlo Brand Outlets (MBO), that provides customers a vivid and enriched experience with a class apart. On a broader view, company holds 196 MBO( June 14’), out of which 18 are owned by company and rest by franchisees. Company also opened two Exclusive outlets in Dubai and one in Kathmandu. MBO are located at high street locations and malls, catering to needs of every segment and class of society. Classification of Apparels

Source: Company RHP, Epic Research

Management : Brief Profile Mr. Jawahar Lal Oswal, aged 70 years, is the Chairman and Managing Director and has been involved with the Company since incorporation. He holds a bachelor’s degree in commerce from the Commercial University Limited, New Delhi. He has more than 50 years of experience in the textile and woolen industry. At the time of joining the Company in 2008, he was the chairman and managing director on the board of directors of OWML. He presently continues to hold such position at OWML and is also the chairman on the board of directors of NSML, NIEL, NPFL and NCFSL. He has been awarded the ‘Punjab Ratan’ at the Punjab State Intellectual’s Conference in 2003 by the All India Conference of Intellectuals, the ‘Udyog Ratna Award’ by the PHD Chamber of Commerce and Industry in 2005, the ‘LMA-Sat Paul Mittal Life Time Achievement Award’ by the Ludhiana Management Association in 2012 and the ‘Achievers of the North’ by the Economic Times in 2013. He was appointed as Chairman on our Board on July 7, 2008 and as Managing Director with effect from August 10, 2011.

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FINANCIAL PERFORMANCE Poised for higher growth; Revenues growth favorable MCFL posted a robust set of figures for the FY14 with revenue up by 24.6% to Rs 519 Cr (v/s Rs 417 Revenue increased by 24.6%

in FY13). The increase in sales was augmented by increase in demand of kids apparel by 8%, with

supported by overseas market

stipulations of GDP growth followed by increasing overseas market. EBITDA margins showed 31.9%

and 8% growth in sale of kids

increase to Rs 109 Cr (v/s Rs 83 Cr in FY13) factored by decrease in prices of raw material and high

apparel

revenue which offset the increased expense cost. Operating margins showed an improvement of 120bps to 21.1% in FY14. Operating margins are amongst the best in apparel industry( average 20%). Owing to marginal increase in depreciation and interest charges owing to expansion plans in setting outlets (50%) put pressure on the PAT which was up by 11.9% YoY to Rs 55.4 Cr.

Revenue-EBITDA Graph

EBIT-PAT Graph

Source: Company, Epic Research

Flat ratios provide hope for revival and good revenue to repay debt Returns have subsided owing to the slowdown in economy which lead to a decrease growth in the company. ROE and ROCE were 14.6% and 20.3% respectively which showed the slight improvement in the current scenario. While the company stand on a debt of Rs 89 Cr in FY14, debt-ratio remained sub 0.3 levels which shows good cash flow. We hope reversal of fortunes of company with Govt intervention to pull up the apparel industry. ROE and ROCE Compared

Debt-Equity

Source: Company, Epic Research

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Consolidated Income Statement Y/E March (Rs Cr) Revenue Growth (%) Cost of goods sold Gross Profit Total SG&A EBITDA margin (%) Depreciation EBIT Interest PBT Tax PAT margin (%)

FY12 375 NM 183 192 107 85 22.7% 6 79 7 73 24 49 13.0%

FY13 416 10.9% 207 209 126 83 19.9% 7 76 4 72 23 49 11.9%

FY14 519 24.6% 261 258 149 109 21.1% 16 93 9 84 28 55 10.7%

FY12 19 131 150 62 1 2 23 37 276 68 0 23 110 72 1 0 276

FY13 22 303 325 67 1 4 49 41 487 128 40 27 109 74 107 1 487

FY14 22 358 380 89 4 2 70 84 630 188 95 34 140 89 82 3 630

Source: Company, Epic Research

Consolidated Balance Sheet Y/E March (Rs Cr) Share capital Reserves and surplus Total Equity Debt Deferred tax liabilities (Net) Provisions Other current liabilities Trade Payables Total liabilities and Equity Fixed assets Investments Loans and advances Inventories Trade receivables Cash and bank balances Other assets Total Assets Source: Company, Epic Research Fundamental Report By Epic Research

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