Wider Reach and Healthy Product Portfolio Should Stem Monte Carlo Fashions Limited's Growth
Increased organized retail results in increasing availability and rise of private labels. These should be able to stem growth in near future. Growth of internet penetration and rise of e-commerce give consumers an easy access. Strong brand recall and wide reach are expected to act as principal growth enablers.
About Monte Carlo Fashions Limited
Oswal Woolen Mills Ltd is a flagship company of Nahar group that began operations in 1949. Initial focus of the company was on hosiery and textile fabrics. In 1972, it set up its wool combing unit due to huge business opportunity in domestic readymade knitwear. In 1984, Monte Carlo was launched as brand and was a significant step in evolution of branded garment industry in India. Ever since it continues to cater to ever-growing demands of clothing and fashion industry in India.
Products of the company reach end customer with help of varied channels such as exclusive brand outlets, multi brand outlets, large format outlets and e-commerce websites. Now, products of the company are available through 200+ exclusive brand outlets, 1300+ multi brand outlets and 60+ large format stores. Keeping consistent growth patterns of brand and growing awareness in mind, the company remains confident that its brand will be a leading fashion and life style brand internationally over next few years.
Growth Enablers of Monte Carlo Fashions Limited
- Diversified Portfolio Should Continue to Lend Support: Monte Carlo Fashions Limited has reported strong growth in revenues in 2Q22 and 1H22. Its revenues saw an increase from INR982 million in 2Q21 to INR2,383 million in 2Q22, with EBITDA rising from INR150 million to INR527 million and EBITDA margins increasing from 15.2% to 22.1%. The company continues to focus on its diversification strategy and places more emphasis on cotton segment. The company’s cotton share was maintained above 50% of total FY21 revenue, exhibiting that it plans to shift to cotton from woollen segment. Diversified product portfolio of Monte Carlo Fashions Limited across woollen, cotton, kids & home furnishing continues to lend support to the company. In FY21, cotton wears made up ~51% of its total revenues. Historically, its presence was strong in Northern and Eastern region of India.
- Growth Strategy: The company’s growth strategy focuses on cotton & cotton-blended apparel, catering to all seasons and expansion of its retail distribution network. While Monte Carlo Fashions Limited has pan-India presence, it has plans to penetrate further in western and southern regions of country. The company has comfortable net cash position. It has adequate banking limits in place, supporting its ability for debt servicing and financing its obligations on time. Healthy credit terms with its suppliers should provide much needed support. The company eyes strong growth without significant capital expenditure and is ready to withstand challenges as current situation unfolds because of its financial and operational strengths.
- Capitalising on Sectoral Dynamics: For consumers present in India, value fashion is a preferred segment. Country’s purchasing power lies in low- to middle-income segment and this should continue. With rising purchase frequency and 2/3rds of sector being unorganised, rise in fashion and brand consciousness continues to make consumers more aspirational and discerning. Monte Carlo Fashions Limited has comprehensive product and brand portfolio that caters to several segments including kids, youth, middle and senior. This remains prevalent in both woollen and cotton & cotton blended apparels which are spread in varied price points, allowing them to service Indian economy and mid-premium to premium segments. The company has ability to tap several segments of market which offers opportunities to grow at brisk pace.
- Competitive Advantages Give an Edge: The company's products satisfy end-user with help of different channels including exclusive brand outlets and multi brand outlets. Currently, the company’s products are available through these outlets. It has featured as clothing partner in several films and reality shows. The company has strategic tie-ups with numerous airlines and multiplexes. Thus, marketing initiatives adopted by the company should lend support. Key strength of Monte Carlo Fashions Limited is its distribution network, with diversified presence across India. It has strong presence through over 1,777 MBO's, 298 EBOs and 622 NCS outlets. During Covid-19, it was able to open 28 new stores in different regions and was able to close few non-performing stores. Significant contribution to its revenue comes from MBOs and franchise EBOs as it principally sells on pre-ordered outright basis. Through this business model, there is no significant inventory risk. Thus, its distribution centres provide a competitive edge. Online presence is another area where the company excels. The company has seen huge demand coming through online channels. For FY21, it saw sales of INR3,720 lakhs against INR2,410 lakhs in FY20 from online channel. This makes ~6% of its total revenues. Monte Carlo Fashions Limited now looks to focus more on selling with help of its own portals. However, its products are available under several e-commerce websites including Amazon, Flipkart, Myntra, Jabong and Kapsons.
- Industry Overview: Textile and apparel industry has been categorised as one of leading segments of domestic economy and is categorised as one of leading sources of foreign exchange earnings of India. India has always been a leading producer of textiles and is being counted as world’s 2nd largest textile manufacturer, with China being first. India has a huge base of raw material and is capable of producing a wide variety of textiles and end products. These products can be utilised in various fields. Out of total India’s GDP, ~5% is being contributed by domestic textiles and apparel industry. This makes up ~12% of India’s export earnings. Textiles and apparel industry is 2nd largest employer, providing direct employment to 45 million people. Since India has adopted modern technologies, it has emerged as cost competitive base for manufacturing. It has been successful in strengthening its position as an alternative to China due to favourable ease of doing business ranking, better compliance and political stability.
- Apparel Industry in India: Domestic Indian apparel market is being classified into men’s wear, women’s wear and kids wear. Men’s wear makes up largest share in apparel market, making up 41% of entire market. Women’s wear makes contribution of ~38%, while kids wear contributes remaining 21% of entire market. Each of them gets characterized into formal, casual, winter wear, sports wear and accessories. Domestic apparel market is being divided by price into super premium, premium, medium, economy, and value segments. Majority share is being dominated by medium price segment among apparel segment, followed by economy segment. Monte Carlo Fashions Limited deals in mid premium range product category. Price sensitive rural population continues to form major part of value and economy price segments of apparel market.
- Factors Responsible for Demand: Demand for textiles and apparel is being supported by rise in disposable income that increases a consumer’s ability to consume and higher usage of plastic money which leads to significant buying among Indian consumers. Intensifying urbanization helps in creating demand of varied goods and services. Increased propensity of consumers to switch should provide additional support.
Conclusion
The company has well-diversified presence across numerous categories including cottons, woollens, home furnishings and kids etc. Cotton wears continue to contribute ~51% of the company’s total revenues and this trend is likely to continue for foreseeable future.
Industry is getting significant support from Indian government. Government in Union Budget FY22 announced plans for establishing 7 mega textile parks over 3 years. Setting up of integrated textile parks should be able to lend support to small and medium entrepreneurs working in textile industry to clusterize investments in textile parks by giving financial support for world class infrastructure. Government decided to rationalise duties on raw material inputs to manmade textiles. In union budget FY22, grant to textiles and clothing sector was INR3,614.64 Cr., ~10% higher than revised budget amount of INR3,300 Cr in FY21.
Stock price of Monte Carlo Fashions Limited has seen a run up of ~105% between Jan 1, 2021- Feb 22, 2022. Stock trades at ~15.88x of FY21 EPS as compared to sectoral average of ~25.21x. This favours going long on stock.
