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.