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Tuesday, December 2, 2014

Monte Carlo Fashions Limited IPO Review


Issue Highlights

Issue Period
3/12/14-5/12/14
Price Band
630-645
Issue Type
100 % Book Building
Face value
Rs. 10
Issue Size
Rs.  342.3 -350.4 Crore
Minimum Bid Lot
23 shares
Maximum Retail Subscription
Rs. 1,92,855 (13 Lots)
Industry
Textile & Apparel
Listing
BSE,NSE
BRLM
SBI Capital, Axis Capital, Edelweiss Fin. Services, Religare
Registrar
Link Intime India Pvt. Ltd.

Industry & Company Profile


Indian textile & apparel industry is worth US 95 $ and growing at a CAGR of 9%.Though organized sector contributes only 17-19 % of the same but is supposed to reach up to 40 % by 2020.
Monte Carlo Fashions Ltd. is an established all-season apparel brand with nationwide sales and distribution network. It was launched in1984 as an exclusive woolen brand by Oswall Woolen Mills Ltd. And was demerged into the present new entity on 1 April 2011.The company primarily caters to the premium and mid-premium branded apparel segment for men, women and kids. At the end of FY 14, there were 191 Monte Carlo Exclusive Brand Outlet (MCEBO) in India, 2 in Dubai and 1 in Kathmandu (Nepal).
The Product Portfolio of MMFL
The company offers diversified product range with in woolen,cotton and cotton-blended apparel.
Presently MCFL operates 196 exclusive brand outlets out of which 18 are company-owned and the rest are on franchisee basis.

MCFL is supposed to foray into its own e-retail business after this IPO as current FDI policy forbids companies with foreign investments to go for B2C (business to consumer) activities but after a company going public this restriction shall no more be effevtive.
Presently, Samara Capital ( a Mauritius based private equity firm) holds around 18 % stake through its affiliate.


The Offer

Offer: 54,33,016 equity shares
QIB category: 27,16,507 equity shares
Non-institutional category: At least 8,14,953 shares
Retail category: At least 19,01,556 eq. shares
Equity shares Outstanding prior to the offer: 21,732,064
Equity shares Outstanding after the offer: 21,732,064

Objects of the Issue

This issue is for listing benefits to the company and for providing liquidity to existing customers (by stake sell by existing shareholders) and thus company shall not receive any proceeds from this offer.
Issue related expenses shall be borne by selling shareholders proportionately.

Concerns

     (1)    As being a predominantly winter apparel player, Seasonality of business and mild (and short) winter could act detrimentally.
     (2)    Slowdown in the economy has a potential to reduces the purchasing power of people and could badly batter the premium brands like Monte Carlo.
     (3)    Operations are primarily concentrated in northern and nort –eastern regions of India
     (4)    In Indian apparel industry only 19% of sales is through organized players while for countries like  USA this figure falls over 80 %. Though this fact prima-facie appears like an opportunity but  the killing competition especially from foreign players will be a concern.


Financials:#

Parameter
FY 14 Value
P/E
25.3
P/B
3.7
Profit CAGR % (3 years)
6.5 %
PEG (Profit)
3.9
NPM % (Net Profit margin)
10.7%
ROCE %
20.3 %
ROE %
14.6 %
Total Debt/Equity
.7
Interest Cover
10
EBITDA Margin %
18 %
OCF/Sales
4.6
Inventory Turnover Ratio
3.7
Working capital Days
156
AR Collection Period
57
EV/EBITDA
16.8

# all calculations at upper value of the price band

Comparison with peer:

Parameter
MCFL
Kewal Kiran (KKCL) #
P/E
25.3
34.43
PEG (3 years)
3.9
2.57
P/B
3.7
7.79
NPM %
10.7%
17.68 %
ROCE
20.3%
33.08 %
ROE
14.6 %
23.06 %

# money control data

Inference:  The valuations of this IPO are stretched and in PEG terms MCFL is more expensive than its established peer KKCL-the company that manufactures brands like Killer, Lawman, Integrity and Easies. Besides KKCL having a proven track of record, considering other financial parameters, KKCL appears as a better choice than MMCL but the future foray of MMCL into e-retailing makes the issue interesting.
This issue shall not fetch any proceeds to the company but going public shall pave its way towards e-retailing which was so far not possible owing to norms.
I think I should go for this one considering listing gains (due to positive sentiment of the market coupled with the re-rating hopes from the company's future foray into B2C business) but only after having a glance at FII subscription figures for the issue. In case of lackadaisical FII response, I shall skip this issue.

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