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Monte Carlo Fashions Limited IPO Review by Ajcon Global (Apply)

Review By Ajcon Global Services Ltd on November 28, 2014

  • Issue date: Dec. 03 – 05 , 2014
  • Issue size: Rs. 3,502 mn at upper end of the price band
  • Face Value: Rs. 10
  • Price Band: Rs. 630 - 645 per share
  • Lot size: 23 equity Shares and in multiples thereof
  • Issue structure: QIB: 50%, Retail: 35%, Non – Institutional: 15%
  • Type of issue: 5.43 mn equity shares - Offer for sale by promoters and Samara Capital (PE investor)
  • Equity shares post issue: 21.73 mn equity shares:
  • Post issue market capitalization: Rs. 14,016 mn at upper price band
  • Book Running Lead Managers: SBI Capital Markets Ltd.. Axis Capital Ltd., Edelweiss Fin .Services Ltd., Religare Capital Markets Ltd.
  • Registrar to the issue: Link Intime India Pvt. Ltd.

Launched in 1984 as an exclusive woolen brand by OWML( one of its Group Companies) which was engaged in spinning of woolen, cotton and other blended yarns, weaving denim fabric and manufacture of apprel. With effect from April 1, 2011, the woolen and cotton apparel business of OWML under the brand 'Monte Carlo' was demerged into this Company. Today, MCL is is one of the leading Indian apparel brands based on revenue. Monte Carlo has been recognized as a 'Superbrand' for woolen knitted apparel in each edition of Consumer Superbrands India since its first edition in September 2014. The Company primarily caters to the premium and mid – premium branded apparel segment for men, women and kids, offering a comprehensive line of woolen, cotton and cotton blended knitted and woven apparel and home urnishings through its 'Monte Carlo Exclusive Brand Outlets' and MBOs, including a network of national chain stores under the 'Monte Carlo' Brand. The Company operates two manufacturing facilities in Ludhiana, Punjab, one for its woolen apparel products and one for its cotton apparel products. The manufacturing facilities include facilities for product development, a design studio and sampling infrastructure. Almost, all its woolen knitted products are manufactured inhouse. MCL have also recently commenced in – house manufacturing of some of its cotton t – shirts and thermals in April 2014. For the remaining cotton and cotton – blended products, it follows an asset light model by outsourcing the production to a network of third party manufacturers. The shares on the block together constitute 25 per cent of the post-offer share capital of the company. The company will not receive the funds raised. The public issue is intended as an offer for sale, a sale of shares by private equity investor Samara Capital (which will reduce its shareholding from 18.51 per cent to 10.94 per cent) and the remaining by the promoter group Oswal Woollen Mills Ltd. In June 2012, Samara Capital, a Mauritius – based India focused private equity firm, through its affiliate, KIL, acquired a stake in MFCL and currently holds 18.51 percent of the pre – offer capital of the Company.

MCL's topline and bottomline have witnessed a CAGR of 17.57% and 5.75%, respectively over the period FY12-14. Geographically, 58 percent of revenues are from North India where as South, East, West and Central account for 2.67 percent, 25 percent, 5.31 percent and 9.02 percent respectively. The Company enjoys return on equity (RoE) of 14.5 %. In addition, the Company has cash and liquid assets worth Rs. 166 crores (cash – Rs. 116 crs + Current Investments- Rs. 50 crs) as on Q1FY15. The Company proposes to utilize the cash for acquisition of good brands in segments like Ethnic wear, Suitings and Shoewear segment. The Company believes that there are no listed companies in India which are engaged in the same business with an equivalent product mix. The Company directly competes with wholesalers, direct retailers of apparels, diversified apparel companies with substantial market share, established companies selling internationally renowed brands, as well as against domestic retailers and regional unorganized competitors in the apparel industry. However, the domestic apparel segment is fragmented and continues to be dominated by unorganized and regional players.

Conclusion / Investment Strategy

At the upper band of the issue price, MCL is valued at 25x – FY14 Post issue EPS/share of Rs. 25.4/- at upper end of the price band. With due consideration to factors like

a) 30 years old well established leading all season apparel brand which,
b) strong back end with in – house design and manufacturing,
c) long term relationships with third party manufacturers,
d) nationwide sales and distribution network,
e) positive operating cashflow,
f) favourable capital structure with decent return ratios,
g) buoyant secondary market conditions,

we recommend "SUBSCRIBE" to the issue only for listing gains.

Reviewer recommends Subscribing to the issue.

Review By Ajcon Global Services Ltd on November 28, 2014