Monte Carlo IPO note: HDFC Sec

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Background & Operations:
Launched in 1984 as an exclusive woollen brand by Oswal Woollen Mills Limited (“OWML”),
one of Monte Carlo fashions Ltd is one of the leading Indian apparel brands based on revenue
(Source: TechnopakReport, 2014). MCFL primarily caters to the premium and mid-premium
branded apparel segment for men, women and kids, offering a comprehensive line of woollen,
cotton and cotton-blended knitted and woven apparel and home furnishings through its
‘Monte Carlo Exclusive Brand Outlets’ and MBOs, including a network of national chain stores
under the ‘Monte Carlo’ brand.
MCFL seeks to capitalize on the growth opportunities in the branded apparel industry based on
its well positioned brand ‘Monte Carlo’. Its heritage of combining quality and style under the
‘Monte Carlo’ brand distinctly positions it to address the needs of consumers for premium and
mid-premium winter-wear in the northern and eastern regions of India as well as a growing
class of consumers who desire everyday formal and casual wear that is consistent with their
urban lifestyles across India. It also continues to broaden its product range including premium
and economy cotton knitted and woven apparel products to appeal to a diversified customer
base across India.
MCFL distributes its portfolio of products through ‘Monte Carlo Exclusive Brand Outlets’ and
MBOs, including a network of national chain stores. Out of the 196 ‘Monte Carlo Exclusive
Brand Outlets’ in India, 18 are owned and operated by MCFL and the rest are operated by
different franchisees. Most of its ‘Monte Carlo Exclusive Brand Outlets’ are located in high
street locations, lifestyle centers and malls that position it as a premium and mid-premium
segment brand in the branded apparel industry. MCFL utilize the services of its exclusive
commissioned agents who facilitate compilation of orders from various MBOs and collection of
payment, and also act as the interface between the Company and the MBOs. As on June 30,
2014, MCFL has supplied its products to over 1,300 MBOs through commissioned agents. It has
also entered into distribution agreements with some of the leading Indian digital commerce
platforms.
The company operates two manufacturing facilities in Ludhiana, Punjab, one for its woollen
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
woollen knitted products are manufactured in-house at its manufacturing facility. It has 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, also known as
job work entities.
Objects of Issue:
The objects of the Issue are
The objects of the Offer is to achieve the benefits of listing the Equity Shares on the Stock
Exchanges and for the sale of 5,433,016 Equity Shares by the Selling Shareholders. Further, the
Company expects that the listing of the Equity Shares will enhance its visibility and brand
image among its existing and potential customers and provide liquidity to the existing
shareholders. MCFL will not receive any proceeds of the Offer and all the proceeds will go to
the Selling Shareholders. The Offer comprises an Offer for Sale of (i) 711,466 Equity Shares by
Mr. Jawahar Lal Oswal; (ii) 445,352 Equity Shares by Mr. Dinesh Oswal; (iii) 87,289 Equity
Shares by Mr. Kamal Oswal; (iv) 1,646,420 Equity Shares by KIL; (v) 910,570 Equity Shares by
OWML; (vi) 1,177,168 Equity Shares by AGFPL; and (vii) 454,751 Equity Shares by VIL. The Offer
for Sale by certain of our Promoters and members of the Promoter Group constitutes 17.42%
and by KIL constitutes 7.58% of the post-Offer paid up Equity Share capital, respectively.

Competitive Strengths: 

Established leading all-season Indian apparel brand: ‘Monte Carlo’ is the flagship brand of MCFL with a portfolio of woollen apparel and 

cotton and cotton blended apparel. As per the Technopak Report, 2014, it is the leading woollen knitted apparel brand in India in the 

premium and mid-premium segment. It is also one of the leading retailers of branded apparel in India in terms of revenue. The strength and 

authenticity of its brand is a competitive advantage and an integral part of its success. Brand image is enhanced by MCFL’s integrated 

marketing, customer relations campaigns and its retail and merchandising strategies which enable it to identify and differentiate its ‘Monte 

Carlo’ brand. ‘Monte Carlo’ has been recognized as a ‘Superbrand’ for woollen knitted apparel in each edition of Consumer Superbrands India 

since its first edition in September 2004.

Nationwide sales and distribution network: MCFL distributes its apparel products through its ‘Monte Carlo Exclusive Brand Outlets’ and 

MBOs, including a network of national chain stores. As of June 30, 2014, MCFL retailed its products through more than 1,300 outlets on a pan 

India basis. Out of the 196 ‘Monte Carlo Exclusive Brand Outlets’ in India as of June 30, 2014, 18 are owned and operated by the Company 

and the rest are operated by different franchisees. While it directly distributes its products to the ‘Monte Carlo Exclusive Brand Outlets’, 

distribution of its products to the MBOs are facilitated by its commissioned agents who procure orders from the MBOs and act as an interface 

between MCFL and the MBOs (other than for its thermal-wear products and products under the range ‘Cloak & Decker’ which it sell directly 

to the distributors). MCFL also exercise control over its distribution channels by, for example, selecting and leasing the locations to be used 

for its franchised ‘Monte Carlo Exclusive Brand Outlets’, defining layouts, fit-outs and fixtures to be adopted at all of the ‘Monte Carlo

Exclusive Brand Outlets’ and providing dealers, distributors and franchisees with marketing, training and supervisory support. In addition, it

has also entered into distribution agreements with some of the leading Indian digital commerce platforms for sale of its products online.

Association with OWML and other Group Companies provides stable and reliable sourcing of raw materials and manufacturing 

capabilities: The ‘Monte Carlo’ brand was launched by OWML, one of MCFL’s Group Companies, which has been engaged in spinning of 

woollen and cotton yarn, weaving denim fabric and manufacture of apparel. With effect from April 1, 2011, the apparel business of OWML 

under the brand ‘Monte Carlo’ were demerged into MCFL in order to increase management focus on the branded apparel business. MCFL

also outsource manufacturing of certain of its products to its Group Companies, including outsourcing manufacturing of some of its cotton 

and cotton blended products to Nahar Spinning Mills Limited and Cotton County Retail Limited. Its association with OWML and other Group 

Companies helps it to procure and maintain consistent high quality of yarn for its woollen apparel and also ensures that minimize any 

significant volatility, uncertainty or delay in raw material availability or third party manufacturing.

Strong back-end with in-house design and manufacturing: MCFL enjoys a competitive advantage due to its strong in-house design team, its

dedicated manufacturing facilities for its woollen and cotton apparel, and its long-term relationship with its third-party manufacturers. It has

a dedicated design team which travels and follows the emerging global fashion trends for creation of the designs for its new collections. It has

over 30 professionals in its design, development and merchandising department dedicated to developing new products, improving existing 

ones and forecasting fashion trends. Almost all its woollen knitted products are manufactured in-house at its manufacturing facility in 

Ludhiana. It has 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, MCFL follow an asset-light model by outsourcing the production to a network of job work entities with 

which it enjoys a long term relationship.

Diversified product range: MCFL has a comprehensive portfolio of product offerings in the woollen, cotton and cotton-blended apparel. Its 

diversified product range helps it to increase its penetration in the metros and expand presence in the tier I and tier II cities in India. 

Comprehensive range of products for men, women and kids and its products with diverse price points for premium, mid-premium and 

economy segments in the apparel industry makes MCFL an established brand poised to capitalize on such growth opportunities in the 

branded apparel industry both in metros and tier I and tier II cities.

Experienced management team: MCFL has an experienced management team led by its Promoter, Mr. Jawahar Lal Oswal who has over 50 

years experience in the textile and woollen industry and it benefit immensely from his expertise. MCFL’s management and their

understanding of the industry trends and market changes has been instrumental in the success of the ‘Monte Carlo’ brand amongst its 

customers. The experience and relationships that its management team has, enabled the company to extend its operating capabilities

improved the quality of its products and facilitated brand equity. It also has a strong second line of management and an experienced pool of 

key managerial personnel; it has been associated with its business for over seven years.

Business Strategy:

Continue to focus on the growth of cotton and cotton-blended apparel: The ‘Monte Carlo’ brand has historically been associated with 

winter-wear for its woollen knitted apparel. This has led to its strong presence in the northern and eastern regions of India. MCFL currently has a pan-India presence; it seeks to penetrate further in the western and southern regions of India with a comprehensive range of cotton 

and cotton-blended products which cater to all seasons. Given the tropical climate in these regions, MCFL seeks to further expand its product 

range in the cotton and cotton-blended apparel segments and focus on the production of cotton and cotton-blended shirts, trousers, t-shirts 

and denims to expand all-season product range and strengthen its pan-India operations.

Strengthen sales network by opening ‘Monte Carlo Exclusive Brand Outlets: MCFL distribute its portfolio of products through ‘Monte Carlo 

Exclusive Brand Outlets’ and MBOs, including a network of national chain stores. While it intends to continue its expansion in tier-I cities in 

north India, it also seeks to focus on the tier-II cities in north, east and central India and tier-I cities of south and west India by opening 

additional ‘Monte Carlo Exclusive Brand Outlets’. The company proposes to open these ‘Monte Carlo Exclusive Brand Outlets’ through a mix 

of franchisee and owned and operated model with a majority of the ‘Monte Carlo Exclusive Brand Outlets’ being opened through franchisee

model.

Focus on expansion of kids wear under the ‘Tweens’ range: In order to capitalize on the growth opportunities in the kids wear segment, 

MCFL has recently launched kids wear range ‘Tweens’ under the ‘Monte Carlo’ brand. It proposes to increase its production and supply of 

apparel products in the ‘Tweens’ range and also launch a dedicated marketing and branding exercise for its kids wear products. The branded 

kids wear segment in India is under-penetrated and offers a compelling opportunity for growth.

Expand manufacturing capacity: MCFL seeks to capitalize on the growth opportunities in the branded apparel industry based on its well 

positioned brand ‘Monte Carlo’. It operates two manufacturing facilities in Ludhiana, Punjab, one for its woollen apparel products and one for 

its cotton apparel products. MCFL is in the process of expanding its woollen apparel manufacturing facility. It propose to construct an 

additional floor in its woollen apparel manufacturing facility and purchase new knitting machines to expand its production capacity. It also 

seeks to enhance its manufacturing capacity of its manufacturing facility for cotton apparel in Ludhiana which was started in April 2014 and 

increase in house manufacturing of cotton and cotton-blended t-shirts and thermals.

Continue to enhance brand in the apparel industry: MCFL will continue to increase brand awareness and customer loyalty through its 

marketing efforts and planned retail expansion. It seeks to seize market opportunities by continuing to allocate significant resources to 

enhance its brand ‘Monte Carlo’. Additionally, MCFL also propose to open new ‘Monte Carlo Exclusive Brand Outlets’ in certain prime retail 

locations which will enhance its position as a premium and midpremium brand in the branded apparel industry. In addition to the marketing 

events and endorsements, MCFL plans to continue to familiarize retailers and distributers with its product line and help them to more 

effectively sell its products to end customers, including through visual merchandising such as creating branded display counters at retail 

stores, which improves its brand awareness and profile.

Expansion through acquisition of a brand or business in the apparel industry: Strategic investments and acquisitions of businesses in the 

apparel industry may act as an enabler of growing MCFL’s business. Its efforts at diversifying into new segments of the branded apparel 

industry or into new domestic or international markets can be facilitated by investing in similar business opportunities or making acquisitions 

of existing brands or businesses with manufacturing facilities, market share or growth potential, whose operations, resources, capabilities 

and strategies are complementary to MCFL.

Industry:

Textile and Apparel Industry

Post the expiration of the Multi Fibre Agreement on January 1, 2005, the textile and apparel industry has witnessed a clear distinction 

between countries as production and consumption hubs. Developed countries like the USA, countries of the European Union and Japan have 

emerged as consuming countries while developing countries like India, China and Bangladesh are producing countries. Cheap labour is one of 

the most important factors driving the developing countries to gain production advantage. According to the Technopak Report, 2014, the 

expected slower annual GDP growth (CAGR 2013 to 2018 is 2.4%) in the advanced economies is directly impacting the consumption of textile 

and apparel, hence reducing its demand. On the other hand, the expected higher annual GDP growth (CAGR 2013 to 2018 is 5.4%) of the 

developing countries has led to an increase in purchasing power of consumers, favouring the growth in textile and apparel consumption in 

these countries.

India is one of the largest exporters of textiles and apparel. India also has vertically integrated supply chain and is known for producing wide 

range of textiles and apparel products. In India’s exports of textiles and apparel, 60% contribution comes from apparel, and 40% from 

textiles. (Source: Technopak Report, 2014).

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/IPOReports/3010115