Monte Carlo Fashions Limited IPO Review by Nirmal Bang (Apply)

Review By Nirmal Bang on December 2, 2014

Price Band: Rs 630-Rs 645
Bidding date: 3rd Dec-5th Dec 2014
Book Running Lead Manager: SBI Cap, Axis Cap, Edelweiss, Religare
Registrar: Link In time India Pvt. Ltd
Sector: Textiles

Minimum Retail Application- Detail At Cut off Price

Number of Shares: 23
Application Money: 14835
Amount Payable: 14835
Discount to retail: N/A

Post Issue Shareholding Pattern

Promoters: 63.63%
Institutions: 10.94%
Bodies Corporates & Public: 25.43%

Offer structure for different categories

QIB (Including Mutual Fund): 50%
Non-Institutional: 15%
Retail: 35%
Post Issue Equity (Rs. in cr): 21.73
Issue Size (Rs in cr): Rs 342.2 – Rs 350.4
Face Value (Rs): 10

Monte Carlo Fashions Ltd (MCFL) is owned by Oswal Woollen Mills Ltd(OWML)and recognized as 'Super Brand 'since last September 2004 derives 45.62% of sales from woollen segment and 43.3% of sales from cotton segment. The company enjoys a wide distribution network with 196 Monte Carlo Exclusive Brand Outlets in India, 2 in Dubai and 1 in Nepal. The company has also supplied products to over 1300 Multi Brand Outlets (MBO) through commissioned agents. The company operates two manufacturing facilities in Ludhiana (Punjab), one for woolen apparel products and one for cotton apparel products.

Details of the issue:

In June 2012, Samara Capital, a Mauritius-based PE firm, through its affiliate, KIL had acquired a stake in MCFL and currently holds 18.51% of the pre-offer capital of the company. With this offer for sale, the promoters will be diluting 17.5% stake while Samara Capital will be divesting 7.5% equity. There is no fresh issue of share.

Objects of the Issue

The issue consists of dilution by promoters and PE funds. The issue will

1. Enhance the visibility and brand image amongst the existing and potential customers;
2. Provide liquidity to the existing shareholders.

Investment Rationale

1. Reduced dependence on any particular segment by catering to diverse product portfolio.
2. Capacity expansion to capitalize on increasing opportunities
3. Strong brand
4. Increasing distribution network
5. Strong back-end with in-house design and manufacturing
6. Focus on expansion of kids wear under the 'Tweens' range
7. Increasing urbanization

We believe that the company has rightly timed its IPO in the winter season as this is the peak season for the company and Q3 reports the highest sales for the year.

Conclusion / Investment Strategy

Valuation and Recommendation

Between FY12-14 Monte Carlo's revenues grew at CAGR of 16% while EBIDTA grew at a CAGR of 7%. Going forward, we expect the company to continue exhibiting high growth trend until the company reaches a reasonable mature stage of business cycle. Moreover, the high growth in the industry coupled with shift from unorganized to organized player will also fuel and support growth for company. As the apparel industry size is expected to grow at a CAGR of 9% by 2023, we expect Monte Carlo to post numbers well ahead of industry growth.

At the given price band of Rs 630-Rs 645, Monte Carlo will trade at PE of 24.68x – 25.26x on its post issue diluted FY14 EPS of Rs25.5/sh and EV/EBIDTA of 14.2-14.6x. We recommend subscribing the issue for listing gain as well as long term view.

Reviewer recommends Subscribing to the issue.

Review By Nirmal Bang on December 2, 2014

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