Monte Carlo Q3FY17 Concall Summary

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Financial highlights

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  • In Q3 2017 revenues from operations decreased to 288 Crores from 351 Crores. EBITDA without other income is 53 Crores
  • In Q3 PAT was 33 croresas compared to 44 Crores last year.
  • Input cost have increased almost 3% to 4% in case of cotton & 5% in case of woolen. For this quarter it has increased almost 3-4% for cotton & 4-5% for woolen.
  • Depreciation has come down to 250 crore levels for FY 2017. Depreciation will keep on falling because there was one-of investment, which was done three years back. It was a heavy investment of around 150 Crores for the building and the machinery.
  • The company does not have any major capex plans for the next 2 years, so the depreciation will keep on coming down every year
  • The company plans capex of not more than 10-15 crores every year
  • There is other income of around 7.7 crores. Normally, it would be around 4 to 5 crores. This additional income is mainly because it wonthe case at the customs where it was paying excise duty which was not to be paid. It fought with the government & won the case.
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Business Highlights

  • The company created a comprehensive range of woolens, cottons, cotton blended, knitted and woven apparels, and home furnishing through some of our ranges under the umbrella brand Monte Carlo such as Denim, Alpha, Tweens
  • At present it has 2,300 plus multi-brand outlets, 232 EBOs, and 198 national chain store outlets
  • Majority of its net revenue comes from MBOs and franchisee EBOs, where we primarily sell on a priority basis
  • Due to its business model, there is no major inventory risk & it remains adequately protected from normal hazards of branded apparel business
  • Comparing Y-o-Y & till 9th November it has grown 18% as compared to last year in its EBO’s. it means that season was good & because of good monsoon there was early pre onset of winter close to the end of October & market was actually growing & also the consumer sentiment was very high. So company thinks that it would have been the situation, it should have easily crossed revenues by 6% to 7% in the full financial year
  • The company does not see major decline from the last year revenue level, but right now if one compares the Y-o-Y 9 months it is down by around 11% but by the end of financial year it expects to close the year with 3-4% decline
  • The retail inventory has gone down in case ofwinter wear category, which is company’s prime category, this is a very good sign & expect booking in the next month. The company sees growth of 10-15% in the next year as compared to last year turnover
  • The company has seen contribution of west mainly because of Rajasthan. The company expects growth of 25-30% as compared to last year sales by March 2017
  • The company has MBO sales percentage of 52% on overall sales & balance comes from EBO’s
  • The company sees no major Capex plan for the next two years
  • It plans to diversify pan-India presence by penetrating further into Southern and Western regions of India.
  • The Home furnishing sales & kids sales were hit due to demonetization more because they were being sold through smaller unorganized segment of the retailers, which do not have the credit card machines. It took almost one month for the bank to install the credit card machines on the shops. The same reason was also the cause of low Sale of MBO’s
  • Any EBO which is more than 1000 square feet of size, is basically kept because to give logistics to the category. If the proper space is not allocated, then it does not justify keeping the kids brand over here. So, size is important. All the new showrooms which are opened from the last two years have the required sizes and have the kids category as well, but some of the old stores like around 80 to 90 stores which do not have the required size of 1000 square feet probably have only ladies and mens wear
  • The company promised its investors that the surplus funds which it used to keep it in bank & against that it used to take OD. Whatever the income used to to come that was to be taken as income from other sources. Now what has happened is some portion of it has been directly withdrawn and utilized for the purpose of working capital, resulting thereof FD has been reduced. So therefore income from other sources, which was earlier to be accounted for under the head other income, has been reduced
  • Stock position at factory and also at EBOs and MBOs is approximately 10% to 15% less as compared to last year. The stock levels have been reduce
  • Realizations actually have gone down because company had to sell that stock in end of season discount sales, but the revenues have increased because most of the sales are happening January
  • The company thinks that inventory going down in the channel will benefit the financial 2018 figures. The revenue is going to go up because some of the goods which have not been sold in Novemberand December will get sold in January and February, but the margin will decline because of higher discounts given to clear the inventory

Debt

  • The company has short term debt of around 27 & this year it might be around 27-30 crore
  • The company is considering early repayment of long term debt possibly by April. It expects in the next year financial 2018 to be about12 to 13 crores debt
  • The company expects that it will have lower financial costs & in subsequent years also the financial cost going down. It is virtually debt free company because right now it has more cash than debt on the books. 
  • Long term debt by the end of financial March 2017would be 33 Crores and the workingcapitalshould be around 40 Crores by March 31
  • Total debt in March 2017 short term & long term would be 67-68 crores & cash available is more than 150 crores so it is a virtually debt free company
  • The interest cost is coming down because of 2 reasons:
  • One is the rates have come down. If one compares the rates of last year and this year, the interest rates have come down
  • Secondly, there has been lower term loan also. Earlier loan was around 90 crores, but by the end of this financial year company has only 33 crores. It has come down from 5.3 crores to 3 crores

Demonetization

  • Sales picked up in October & November but then Demonetization hit & company’s estimates of filing up the gap were nullified as demonetization curtailed the consumer's discretionary spending during the months of November and December which is the peak period
  • Due to this results are on the lower side as compared to last year, Q3 financials have been affected primarily due to difficult operating environment
  • Liquidity crunch due to demonetization during the month of November and December led to lower consumer pending leading to lower sales. Also high inventory levels at the stores due to bad winter last year furtherimpacted the off take during the current season. Early discounting to promote sales during the demonetization period impacted the EBITDA margins.
  • The company works on preorder basis, so it dispatches it, it only wants it to be cleared from the retailer side. During demonetization it did not happen at it s EBO’s.  Goods were going on in discount in January & February sales, so this why actually it was doing discount sharing in its EBO’s & not on MBO’s. it is going to effect January to march sales

 Decrease of Agent Commission

  • The company wants to run business on low credit basis. Earlier the company used to account for interest on account of late payment separately and compassion paid separaTely. Now,  it straightaway reduced the commission payable to the agent. 

Cash Less Sales Initiative

  • Every retailer now has installed, either MBO or EBO, have credit card machines, and PayTM
  • Cashless component in EBO has gone up before November only 52% of sales wasfrom Debit & credit cards, now till 15th December it was around 90% of credit & debit cards, in January it is around 82-83% of credit & debit cards
  • Stocks which were there at retailers and at EBOs have gone down almost 10% as compared to last year,so that would boost the ordering for the next year and also the revenue for the next year.

Price hike 

  • The company is considering increase in price of garment in the next year because of hike in raw material prices
  • The company does price hike every year it is nominal 3-4%, sometimes it is 7-8%, sometimes it is even 12-13%

Growth Areas

  • The company thinks that inventory going down in the channel will benefit the financial 2018 figures. The revenue is going to go up because some of the goods which have not been sold in Novemberand December will get sold in January and February, but the margin will decline because ofhigher discounts given to clear the inventory, but the good thing is that the stocks which werethere at retailers and at EBOs have gone down almost 10% as compared to last year,so that would boost the ordering for the next year and also the revenue for the next year.
  • The company basically has 3 main growth areas.
    • First is the existing category which will keep growing & strengthening in the economy
    • Secondly, as the economy is growing these categories will also grow, because right now economy is growing at a slower rate. Once it is growing at a little faster rate, even the existing category will grow.
    • Growth will also come from the Southern and Western regions where it has begun to increase its growth rate as compared to the past, which is touching around 30% to 35% as compared to lastyear.
    • Thirdly, it sees the growth coming from the accessory segment, which is socks,caps, mufflers, and this should become at least 60 to 70 Crore business in the next 2 to 3 years.
    • Fourthly its economy brand which is Cloak & Decker, which has been growinghandsomely for the last two years, should grow at a more faster rate in the coming 2 to 3years
  • .The stocks which were there at retailers and at EBOs have gone down almost 10% as compared to last year,so that would boost the ordering for the next year and also the revenue for the next year

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