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IPO REPORT

Monte Carlo Fashions Ltd.

Dresses up for Hot Markets

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Issue Details

Shareholding Pattern

Share reservation (%)

About the company “Monte Carlo Fashions Ltd”

One of India’s leading woolen apparel brand, Monte Carlo Fashions Ltd (MCFL) was

launched in 1984, as an exclusive woolen brand by parent company “Oswal Woolen Mills

limited (OWML)”. Company was engaged in spinning of woolen, cotton and other

blended yarns and is now recognized as a ‘Superbrand’ for woolen knitted apparel in each

edition of consumer super-brands India. Mauritius based private equity firm acquired a

stake in Monte Carlo in June 2012. Samara Capital currently holds 18.51 % of the pre-offer

capital of the company. MCFL distributes its products through ’Monte Carlo Exclusive

Brand Outlets’ in various parts of country (196 as on June 14’) and caters in premium and

mid-premium branded apparel segment for men, women and kids. Launching of IPO in

the winter season will help company take advantage of the seasonal effect along with

stock markets on a roll.

Issue Objective

To achieve the benefits of listing the Equity Shares on Stock Exchange and for the sale

of 5,433,016 equity shares by the selling shareholders

Listing the shares on exchange will increase the brand image and transparency to the

precious customers along with providing liquidity to the subscribing shareholders

Being an ‘offer for sale’ the company will not receive any funds raised by IPO and all

proceeds will to in the hands of shareholders. Company being a cyclical one, the sales is

bound to vary with the market scenario.

Our Recommendation: “SUBSCRIBE for listing gains”

For the above lower and upper price band of Rs 630-645, the P/E stands at 24.73x and

25.31x which is less as per industry standard (average P/E 28x), hence we believe that the

company’s IPO listing would be a success and investors would benefit from healthy listing

gains. High Debt/Equity ratio of 0.24 is a concern, followed by decrease in Cash in hand

worries a bit, we believe the company’s precious brand value and venture in new seg-

ments, along with strong fundamentals will prove to outperform peers and make a grand

entry in the already heated up Stock Market. We recommend to SUBSCRIBE.

Stock Recommendation

Rating Subscribe

Issue opens 3-Dec-14

Issue Closes 5-Dec-14

Price band (Rs) 630-645

Potential Upside 25-30%

Fundamental Report By Epic Research

Monte Carlo Fashions Ltd

1-Dec-14

Please refer to disclosures at the end of this report www.epicresearch.co

Face Value (Rs) 10

Issue Size (Rs Cr) 350

Industry Clothing

Lot Size 23 shares

QIB 50

Non institutional 15

Retail 35

Issue Manager

BRLM SBI Capital Market,

Axis Capital,

Edelweiss, Religare

Registrar Link Intime India

Listing BSE, NSE

Pre IPO %

Promoter 81.06

Samara Cap 18.51

Others/ Public 0.43

Post IPO %

63.63

10.94

Romil Jain

rojain@epicresearch.co

Jayesh Tare

jtare@epicresearch.co

Source: Company RHP, Epic research

Financial Performance

Y/E March (Rs Cr) FY12 FY13 FY14 Q1FY15

Revenue 375.4 416.5 518.9 74.8

YoY % NM 10.9% 24.6% -

EBITDA 85.1 83.0 109.4 18.0

Margin % 22.7% 19.9% 21.1% 24.1%

PAT 48.9 49.5 55.4 8.5

Margin % 13.0% 11.9% 10.7% 11.4%

EPS (Rs) 26.92 23.33 25.48 3.92

ROE % 32.5% 15.2% 14.6% 2.4%

ROCE % 39.5% 19.7% 20.3% 11.3%

BVPS 69 149 175 179

Analyst’s

25.43

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Why Should you SUBSCRIBE to this IPO?

Monte Carlo brand is famous for its comfort fabric and designs

As per Technopak Report, 2014, MCFL is the leading woolen knitted apparel brand in India in the

premium and mid-premium segment. Monte Carlo being the flagship brand of the company, has

helped place company as one of the top retailers of branded apparel in India. Company successfully

launched many segments under Monte Carlo to cater needs of every age groups. For eg ‘Platine’ is

premium range for men, ‘Denim’ is exclusively for denim apparels, ‘Alpha’ exclusively for women

and ‘Tweens’ for kids. Integrated marketing and customer relation and merchandising strategy

helped to intervene new areas.

Vast geographical distribution and marketing keeps company in good position Distribution done mainly through MBO and Exclusive Outlets helps company maintain its high status.

Fashion stores are present in various parts of country totals 1300 outlets on pan India basis.

Company has 77 brand outlets in Northern region; 42 in Eastern regions; 57 in Central region; 11

in Western region and 4 in Southern region. Company also entered into distribution agreements

with some of India’s leading digital commerce for sale of their products and easy availability of

clothes. The company also plans to increase the no of MBO and exclusive Outlets to 250 in coming

years. With little market capture in Southern region where company hopes to launch many other

stores. Demand in south had been low owing to warm climatic conditions. However, with the new

cotton garments facility, company is sure to capture more of southern market with exclusive designs

and quality material.

In-House designs and manufacturing makes it self-sufficient

Company enjoys a competitive advantage being self-sufficient in in-house and design team, dedicat-

ed manufacturing facilities for woolen and cotton apparel along with long term relationship with

third party manufacturers. Dedicated design team ensures that fresh and trendy designs suitable to

the minds of people are in market along with a close eye on the emerging trends. With continuous

market surveys through dealers, retailers and dedication, people’s mind is captured on clothes and

presented in handy. Almost all manufacturing is done in the facilities owned by the company while

for other products, they follow asset light model by outsourcing the production to a network of jobs.

Diversified product range for warmth and make a fashion statement to all sections of society

Company provides a vast portfolio of product offerings in the woolen, cotton and cotton-blended

apparel. With this portfolio the company manages to penetrate even the niche areas apart from

metros and Tier I and II cities in India. Products are priced such that they are accessible to the every

economical class while still maintaining profit margins (10-15%). Their winter collection includes

sweaters, cardigans, jackets, blazers, suits, shawls and stoles whereas, non-winter collection includes

shirts, trousers, t-shirts, cargos, linen apparel and denims. MCFL also launched a home furnishing

range which includes mink blankets, bed sheets and quilts. Additionally, they sell thermal wear and

other winter accessories including scarves, mufflers and woolen caps in ‘Monte Carlo Exclusive Brand

Outlets. With the GDP growth back on track, consumer spending is sure to increase along with win-

ter season on the verge.

Age old name and firm roots in

the history of Woolen

apparels, provides a rational

for investment

IPO report

Fundamental Report By Epic Research www.epicresearch.co

Vast distribution and access

to every house hold makes

it hot favorite

Provide variety of apparels for

every occasion

Exhaustive market surveys

helps to bring latest fashion

and trends in apparels

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INDUSTRY OVERVIEW

Textile and apparel industry has been a major contributor of India’s GDP along with employing more

than 35 million people. The industry is crucial in terms of industrial production and foreign

exchange. Easy availability of raw materials as cotton, wool, silk and jute along with skilled work-

force makes our country eye-widening for many. As of 2013, India’s textile market reached US$ 59

billion while the total export market was at US$ 36 billion. India’s Textile industry has been growing

with a CAGS of 9% and is expected to grow rate of 11% at the same rate with total market.

Geographical Distribution decides the nature of growth for the sector

Change in seasonality affects the apparel industry. Winter season leads to more sales of apparel.

While the winters are strong in northern part of the country, they are scanty in south and western

region. Metro cities top the list with majority of them going for branded wear, with fine quality and

style, other Tier I and II cities are economical and are basically need based than style based. The

need of clothing vary from economies of scale for people in metros where style if their status quo.

The rural and rest urban sector is much deprived of brands and is mainly unorganized by khaadi and

other low quality material.

India’s Woolen Apparel Industry fragmented to branded and unbranded Players

India’s textile industry has been divided into branded and unbranded players which pose problem to

players especially in winters. The ratio is 70:30 with 70% players from unbranded sector. Common

people are still far from reach of branded because winters are for 3-4 months only. However, with

new designs and new pricing being brought up by the branded players, the companies are luring the

customers to try new apparels keeping fashion in mind. Online shopping provides easy access to

new brands as well high street showrooms will attract the crowd.

Industry demands for a more

organized way to channel

investments

IPO report

Fundamental Report By Epic Research www.epicresearch.co

Scope for multi billion industry

with a CAGR of over 11% in

next 10 years

Geographical Distribution of Woolen Industry in India Region wise Distribution of Apparel Industry

Source: Technopak Report, Epic Research Source: Technopak Report, Epic Research

Economies of scale forms

single major factor to churn

portfolio

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Company Profile

Monte Carlo Fashions Ltd (MCFL) was incorporated on July 1, 2008 in Ludhiana, Punjab under the Indian Companies Act, 1956 as a subsidiary of OWML. MCFL is India’s leading woolen apparel man-ufacturer and has been recognized as “Superbrand” for woolen knitted apparel in each section. MCFL caters to need of consumers for premium and mid-premium winter wears in northern and eastern regions. Company has under its kitty two manufacturing units located in Ludhiana, one for woolen and other

for cotton apparels. Manufacturing Facilities include facilities for product development, design stu-

dio and sampling infrastructure. All woolen and cotton knitted apparels are manufactured in-house

with newly started in-house especially for t-shirts and thermal wear in April, 2014. Company follows

an asset-light model by outsourcing the production to a network of third party manufacturers.

MCFL distributes its wide range of collection through ‘Monte Carlo Exclusive Brand Outlets’ and

Monte Carlo Brand Outlets (MBO), that provides customers a vivid and enriched experience with a

class apart. On a broader view, company holds 196 MBO( June 14’), out of which 18 are owned by

company and rest by franchisees. Company also opened two Exclusive outlets in Dubai and one in

Kathmandu. MBO are located at high street locations and malls, catering to needs of every segment

and class of society.

Management : Brief Profile Mr. Jawahar Lal Oswal, aged 70 years, is the Chairman and Managing Director and has been

involved with the Company since incorporation. He holds a bachelor’s degree in commerce from the

Commercial University Limited, New Delhi. He has more than 50 years of experience in the textile

and woolen industry. At the time of joining the Company in 2008, he was the chairman and

managing director on the board of directors of OWML. He presently continues to hold such position

at OWML and is also the chairman on the board of directors of NSML, NIEL, NPFL and NCFSL. He has

been awarded the ‘Punjab Ratan’ at the Punjab State Intellectual’s Conference in 2003 by the All

India Conference of Intellectuals, the ‘Udyog Ratna Award’ by the PHD Chamber of Commerce and

Industry in 2005, the ‘LMA-Sat Paul Mittal Life Time Achievement Award’ by the Ludhiana

Management Association in 2012 and the ‘Achievers of the North’ by the Economic Times in 2013.

He was appointed as Chairman on our Board on July 7, 2008 and as Managing Director with effect

from August 10, 2011.

Its the way you make me

feel..........Monte Carlo !

giving comfort to India since

inception

IPO report

Fundamental Report By Epic Research www.epicresearch.co

Classification of Apparels

Source: Company RHP, Epic Research

Extensive clothing portfolio for

with immense variety and

designs, blended with comfort

and style

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FINANCIAL PERFORMANCE

Poised for higher growth; Revenues growth favorable

MCFL posted a robust set of figures for the FY14 with revenue up by 24.6% to Rs 519 Cr (v/s Rs 417

in FY13). The increase in sales was augmented by increase in demand of kids apparel by 8%, with

stipulations of GDP growth followed by increasing overseas market. EBITDA margins showed 31.9%

increase to Rs 109 Cr (v/s Rs 83 Cr in FY13) factored by decrease in prices of raw material and high

revenue which offset the increased expense cost. Operating margins showed an improvement of

120bps to 21.1% in FY14. Operating margins are amongst the best in apparel industry( average 20%).

Owing to marginal increase in depreciation and interest charges owing to expansion plans in setting

outlets (50%) put pressure on the PAT which was up by 11.9% YoY to Rs 55.4 Cr.

Revenue increased by 24.6%

supported by overseas market

and 8% growth in sale of kids

apparel

IPO report

Fundamental Report By Epic Research www.epicresearch.co

Source: Company, Epic Research Source: Company, Epic Research

Revenue-EBITDA Graph EBIT-PAT Graph

Flat ratios provide hope for revival and good revenue to repay debt

Returns have subsided owing to the slowdown in economy which lead to a decrease growth in the company. ROE and ROCE were

14.6% and 20.3% respectively which showed the slight improvement in the current scenario. While the company stand on a debt of

Rs 89 Cr in FY14, debt-ratio remained sub 0.3 levels which shows good cash flow. We hope reversal of fortunes of company with

Govt intervention to pull up the apparel industry.

ROE and ROCE Compared Debt-Equity

Source: Company, Epic Research Source: Company, Epic Research

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IPO report

Fundamental Report By Epic Research www.epicresearch.co

Y/E March (Rs Cr) FY12 FY13 FY14

Revenue 375 416 519

Growth (%) NM 10.9% 24.6%

Cost of goods sold 183 207 261

Gross Profit 192 209 258

Total SG&A 107 126 149

EBITDA 85 83 109

margin (%) 22.7% 19.9% 21.1%

Depreciation 6 7 16

EBIT 79 76 93

Interest 7 4 9

PBT 73 72 84

Tax 24 23 28

PAT 49 49 55

margin (%) 13.0% 11.9% 10.7%

Consolidated Balance Sheet

Consolidated Income Statement

Y/E March (Rs Cr) FY12 FY13 FY14

Share capital 19 22 22

Reserves and surplus 131 303 358

Total Equity 150 325 380

Debt 62 67 89

Deferred tax liabilities (Net) 1 1 4

Provisions 2 4 2

Other current liabilities 23 49 70

Trade Payables 37 41 84

Total liabilities and Equity 276 487 630

Fixed assets 68 128 188

Investments 0 40 95

Loans and advances 23 27 34

Inventories 110 109 140

Trade receivables 72 74 89

Cash and bank balances 1 107 82

Other assets 0 1 3

Total Assets 276 487 630

Source: Company, Epic Research

Source: Company, Epic Research

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IPO report

Fundamental Report By Epic Research www.epicresearch.co

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