Monte Carlo Fashions-Branded Apparel Stock at Good Valuation

(Mike) #21

Hi all, Company posted losses but can"t figure out what led to such poor performance on qualitative aspect. Where can i get access to transcript of the conference call as it is not on the company website and BSE sites? thanks

(barasia) #22

The conference call is up on research bytes. The management stated that this quarter 4 was particularly worse than usual because they had to clear the inventory, which was higher this year due to demonetization. Hence increase in revenue but decrease in profits.

(Macha) #23

Tide is turning for them and there would be better nos going forward.

(Mridul) #24

My notes from Q1 FY18 concall -

  • Looking to add fitness and a fashion wears with a brand name ROCK IT, which we are launching online in next one month. We expect this new segment should bring meaningful contribution to our overall revenue in the coming years. Will be launched on Myntra and Jabong only. Competes with Nike, Adidas and likes. Kept it as a separate brand to create a separate image. Projecting a turnover of 3-4 Cr in the first year.

  • 2,300 plus MBOs, 230 EBOs and 200 national chain store outlets. Majority of the net revenues come from MBOs and franchise EBOs where they primarily sell on pre-orders and outright basis. Due to this business model, there is a no major inventory risk and the company remains adequately protected from normal hazards of branded apparels business.

  • Till date they have experienced zero bad debt in the business.

  • FY17 was a challenging year due to higher inventory in the system from previous years and demonetization coming right at peak business period. This is all back to normal! Have witnessed a strong pickup in sales in the month of April and May.

  • GST issues in June month as our business partners started de-stocking inventory as they were preparing for GST. Q1 revenue was down as stores have shifted their purchase post GST and early discharge of summer goods in the previous year. It is all behind us and business prospects are looking healthy.

  • Gross Profit margins remained strong.(over 70%) Achieved 12.7% EBITDA margin without other income despite the headwinds of GST and a demonetization. Interest expense has come down as they are reducing debt. and also due to reducing interest rate.

  • Plan to diversify their pan India presence by penetrating further into Central, Southern and Western region of India. Focus on brand visibility, optimizing asset utilization, quality, efficiency and relationships.

  • No major CAPEX planned for next two years. Growth will be achieved from higher capacity utilization

  • Maintaining our full year guidance of 15-18% and also the same guidance for woolens and cottons.

  • Inventory has come down to 233 Cr as compared to 262 crores of last quarter and the short term borrowing in June 2017 is 66.64 as compared to 92.54 last quarter of June 2016.

  • Somebody asked where they look themselves in next 3-5 years. A very good question aas despite such a great brand they just manage 600 cr turnover. Mgmt answered that they are diversifying which will lead to 15-18% growth consistently for next 3-4 years. Depends on GDP growth. If GDP growth picks up, even 25% growth is achievable.

  • Growing profitably at 35%-40% in South and West. These two zones will contribute around 15% of the overall revenue in 3 years time.

  • Last year they curtailed their advertisement expense because of demonetization as everybody wanted to save the money at that point of time. Keeps 4-5% guidance for this fiscal.

  • There is this fabric component in their revenue which is just a pass on at cost. So, for Q1 FY18, revenue is 54 cr, not 66 cr. So, EBIDTA and other numbers should be based on 54 cr. fabric sales for last year was around 50 crores. So, this number should be removed from the overall sales to get the core sales number.

  • They buy almost 90%-95% of our requirement from our sister concern Oswal Woolen Mills at arm’s-length pricing (Grant Thornton is the external auditor) and which is the only mill actually who manufactures these kind of pure wool yarns in these categories. as far as cotton yarn, cotton fabric, cotton woven garments is concerned, around 10% comes from our sister concern company, 90% comes from the various manufacturers of these kind of fabrics all over India and world.

  • Returned inventory (14-15% of the overall sale) is sold at exclusive company owned outlets (22) at slight loss/at cost. So, basically discount sales (at 50%). Almost everything gets sold. So, overall revenue from fresh sales comes down from 66 cr to 54 cr to 49 cr. Woolen returns normally come in the Jan to March quarter and the cotton returns normally

  • comes in the July to September quarter.

  • 90% of the product goes on outright selling, so no fear of wool price swings.

  • In B2B (boost to topline) segment, actually we have started the institutional and corporate supplies. So in that case earlier the revenue was I think around 7-8 crores. Last year, we did 18 Cr and this year we have projection of 30 Cr. Was reluctant to give the margins for B2B but said it is definitely less as compared to the retail sales margins. it will be like recently we got Punjab Police Tender under open CR. So it is one to one negotiation. They are won tenders from Haryana Police, from many big corporates like BHEL, HAL and Delhi Metro for their uniform requirement which they have authorized them to supply.

  • Online sales projections - 4% of the revenue for FY18

  • Cash usage - Looking for acquisition in ethnic wear segment. Looking out for a company with 15-20% EBIDTA, with 100-150 cr revenue. Had some offers on the table, but nothing great on the table so far. No timelines given for this acquisition. Will consider when opportunity presents itself. Dividend is 100%. Might increase if cash is not used elsewhere.

  • Would like to operate with franchisees only (asset light). Have opened stores only at places where they are not able to find franchisees.

  • Have seen a decline of almost 30% in home furnishing business due to GST in this qtr. Will normalize in q2/q3. This segment is growing almost at 20% from last 40-5 years. Contributes around 51 cr to topline. Mostly blankets. This year would be flat, but should grow 20-25% next year int his segment due to unorganized to organized shift.

  • Kids wear, we should touch approximately 75 Cr presently from 28 Cr in next 3 years. This is one category which we are very hopeful of.

  • Increased price of around 4%-5% on various category of garments which were above the Rs. 1000 range and that has already been accepted by the market also. So as far as we are concerned, we are not having any effect on our margins because of GST.

([email protected]) #25
  • Monte Carlo looks good at this price because of following reasons
  • ----- Debt free—
  • cash and cash equivalents of nearly 130 Cr
  • Good Brand name-----
  • Good inventory control
  • l---- less capex in next 2 years
  • — and 15 20 cagr in next 2 to 3 years
  • ---- Ethinic brand acquisition will prove to be handy

(Vivek) #26

Hasnt the Receivable days gone up from 60 days in 2014 to 93 days in 2017 isnt that a concern?
Also net margin % has gone down from 11 % to now 7-8% ? any views on why it has happened?

(Mridul) #27

Net margin can be due to increasing share of cotton garments i.e. 53%. It is a low margin segment. Need to check on recievable days.

(Mridul) #28

My Q2 FY17-18 concall notes -

  1. Maintains 15-18% growth guidance for the year.

  2. Home furnishing segment under some pressure due to GST issues (Many small vendors are reluctant to register under GST). Should normalize going forward.

  3. Not opened any fresh EBOs in south region but have presence through national chains stores and multibrand outlets. Mostly present in three states - AP, Karnataka and TN. Have just appointed a distributor in Kerala, sales should start most probably in the next qtr. Still maintaining 30% growth guidance in South. Mgmt accepts that growing in South has been a challenge (in terms of brand perception (Monte being a woolen brand). though, last 3-4 years of growth in that region indicates that they are moving in the right direction. Perception is changing.

  4. 4% advertising expense this year. 25-30 cr.

  5. Management very confident on growing cotton segment in double digits. Woolen is and will grow in single digits. Woolens sweaters contributed 100% revenue in 2003-04, now contribute just ~ 34%.

  6. Credit period for cotton/woolen it is 75 days for MBOs, 60 days for EBOs, and for national channel store it is consignment so when they sell the good, they give the payment in 15 days.

  7. Woolen brand Cloak & Decker is to capture the economy segment where Monte Carlo could not reach. It is priced 20% lower than Monte Carlo. There are many rural areas where the potential is there for unorganized segment to convert that customer into the branded segment.

  8. For H1 FY17-18, 70% is men’s sales 30% is women sale.

  9. Gross margins for woolens are high (55%) due to in house production. Gross margins on cottons is lower (35%) due to outsourced manufacturing. On the contrary, net margins for cotton are better than that of woolen segment. This is actually very confusing as they say at

  10. @aveekmitra grilled them a lot on inventory and receivables. But mgmt wasn’t able to put up a satisfactory answer. Regarding receivables vis a vis brand, they said things will normalize in q3. Aveek bhai, please post your follow up with the mgmt if possible regarding inventory, receivables and margins for cottons vis a vis woolens.

  11. Capex guidance for this year - 12 cr.

  12. Taken a price increase of 5% as RM prices have gone up by 4%.Would reflect in Q3.

  13. Sportswear “Rock it” brand sales target o 30-40 cr in 3 years. Hoping 18-20% margins for this.

  14. On all questions regarding margins and guidance, mgmt said they have taken everything (RM pricing and other stuff) into consideration while giving guidance of 15% growth and 18-19% EBITDA margins. Last year EBITDA was 13.5%.

([email protected]) #29

([email protected]) #30

Strong guidance ahead

([email protected]) #31

([email protected]) #32

([email protected]) #33

([email protected]) #34

(atul1082) #35

A seasonal play,quality of product still average and above all, the group ie nahar group has been a big money destroyer in almost all of it’s companies

(arvindp) #36

The company has posted a good set of Q3 numbers. With this Q3 numbers, even if they have average Q4, then also they will have about 11-12% of YoY growth. If Q4 is also good like the Q3, then they will exceed their annual revenue guidance of about 670 Cr.
Also, cotton business is picking up and hence reducing the dependence on seasonality and geography (since woolens are majorly sold in north India). Company is sitting on good cash.
Valuations are not very high. Until management does some goof up (aka kitex), looks like there is more to go in terms of stock price.

(Mridul) #38

Q3FY18 concall notes -

  1. A decent qtr with growth as anticipated. Sticking with guidance of 15-18% topline growth or the year and 18-19% EBITDA. Will give guidance for next year in May.

  2. Cotton segment is doing fine. Woolens grew only by 2%. One interesting thing that came up during the discussion was that the cotton segment comprises of sweatshirts and jackets, which were a major part of cotton sales in q3. So these are actually winter wears but end up in cotton segment. So q3 is still the best qtr by far as lot of cotton winter wears get sold in this qtr.

  3. Both woolens and cottons have same PBT margins. (cottons is mostly outsourced).

  4. Trying to make an acquisition but not finding anything that matches Monte’s EBITDA. Still hunting. Will decide on cash if nothing materializes.

  5. Other income will be 1 cr per qtr going forward.

  6. Debtors rose considerably as some payments were delayed. But position will normalize post q4.

  7. In woolens capacity utilization is close to 80%. Expecting double digit growth in next 2 years, so no capex needed. Cottons is anyways outsourced, so not limited y capacity.

  8. Home furnishings is growing very well and expected to keep doing well going forward.

  9. Rock It brand did 2.5 cr sales. Target of 10 cr for next year.

  10. Q4 will be better than Q4FY17.

Disclaimer: Invested. Added more in last 3 months.

(Suneel) #39

Questions on increase in receivables vs Qtr sales was not answered properly!

(Mridul) #40

Right…But they gave couple of reasons for that. They said by end of Q4, they should come back to last year levels.

(Suneel) #41

They are consistent in not standing by their words… over commitment and under perform