Monte Carlo Fashions IPO Review By Wealth Rays (Apply)

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Review By Wealth Rays Securities on December 1, 2014

About The Industry (Textile and Apparel Industry)

India in one of the largest exporters of textile and apparels, 60% of the contribution comes from Apparel and 40% from textiles. Industry is seen growing at CAGR of 8% in between 2009 to 2013. India's textile and apparel industry is expected to grow at CAGR of 9%. Indian markets are dominated by unorganized markets; organized retail is expected to cover 25% by the end of next year.

About Company

Monte Carlo is one of the leading Indian apparel brands based on revenue specialized in premium and mid-premium winter wear in the northern and eastern regions of India with everyday formal and casual wear. The brand is established in 22 states with their exclusive outlets and multi brand outlets. Company has 190 outlets of which 80 are owned by the company and the rest are franchisee. Company is seen growing at CAGR of 17% from 2012 to 2014. With two manufacturing units in Ludhiana, Punjab, the company has well developed infrastructure.

IPO offer

Company plans to raise 350 crore through this IPO by issuing 54.33 lakh equity shares of Rs. 10 face value for a price consideration between 630-645. With the help of this IPO the company plans to start own e-commerce facility which is currently run under the group company.

Strengths

1. Company is well established in Indian markets with all season Indian apparels and has wide distribution network.
2. With strong industry connections, the company is stable and has reliable sourcing of its raw materials.
3. Company is more focused on opening nationwide exclusive retail outlets. Along that starting of their e-commerce platform would provide an edge.
4. Company is planning to expand its manufacturing facilities and also acquire other brands to gain market access in apparel industry.

Risks

1. With less presence in Southern and western part of the country, the expansion planning could hamper the business strategy and growth.
2. With increase in competition and other major players in the market is one of the threats for the company.
3. Change in trend of the apparel industry has to be well adjusted by the company and any failure in adapting the changes could hamper their revenue and growth.
4. Funds raised from IPO would be marginally used for expansion and more on sale of shares by Selling Shareholders.
5. Negative cash flows from operating activities were seen in fiscal year 2012 also from investing activities in fiscal year 2012, 2013 and 2014.

Financial Analysis

The revenue of the company has grown at a rate of 10% for 2012-13 and at a rate of 24% of 2013-14. The revenue for the company didn't grow as expected in the previous quarter but the revenue is still seen as steady. Profitability for the company is seen and it has consistently managed to maintain its PAT in the 10-12% range. Sustainability is seen good for the company moving into the future.

The current EPS for the company is seen at 25 and considering the price band of Rs 630 – 645, P/E is seen at approximately 25.7 to 26. Some of its peers like Zodiac clothing have a P/E ratio of 50.78 while Kewal Kiran Clothing Limited has a P/E ratio of 31.68. Considering these number, the price band for the company appears to be reasonably priced.