Monte Carlo IPO opens: Should you subscribe? Moneycontrol Bureau

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Ludhiana-based woollen and cotton apparel manufacturer Monte Carlo Fashions (MCFL) has opened its public issue of 54.33 lakh equity shares for subscription today. The company has fixed price band of Rs 630-645 per share or the issue, which will close on December 5, 2014. Bids can be made for minimum 23 equity shares and in multiple of 23 shares thereafter. Monte Carlo, the apparel retail chain, aims to garner Rs 342-350 crore through the issue by diluting 25 percent shareholding. There is no fresh issue of shares. Promoters (including Oswal family & members and other companies) will reduce their stake from 81.06 percent to 63.63 percent and Smara Capital, a Mauritius-based PE firm (through its affilliate, KIL had acquired stake in Monte Carlo in June 2012) will cut its shareholding from 18.51 percent to 10.94 percent through this issue. The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges and the sale of 54.33 lakh equity shares by the selling shareholders. Monte Carlo allotted 16.29 lakh equity shares at Rs 645 apiece amounting to Rs 105.12 crore to anchor investors namely DB International (Asia), Aditya Birla Private Equity Trust, Tata Mutual Fund and Birla Sun Life. Brokerages advise subscribing to the issue, citing its strong brand image, strong distribution network, asset light model, healthy balance sheet, positive operating cash flow, widening product portfolio and increasing urbanization. "With factors such as strong brand value & distribution network, its diversification in non woollen segments and healthy balance sheet along with the recent good performance of share price of other textile companies in the secondary market, we think it may attract investor interest," said Way2wealth. The company’s net sales have grown at a CAGR of 16.3 percent over FY2012 to FY2014. Although, the EBIDTA margins have declined from 22 percent in FY2012 to 18.7 percent in FY2014, Angel Broking believes they are at sustainable levels. The net profit has grown at a CAGR of 5.8 percent over FY2012-FY2014. "We recommend subscribe to the issue at the lower end of the price band from a two-year perspective. From a one-year perspective, we see limited upside potential as valuations seem to be fair," says Angel. Nirmal Bang, which recommends subscribing to the issue for listing gain as well as long term investment, expects the company to continue exhibiting high growth trend until the company reaches a reasonable mature stage of business cycle. Moreover, the high growth in the industry coupled with shift from unorganized to organized player will also fuel and support growth for company, it adds. As the apparel industry size is expected to grow at a CAGR of 9 percent by 2023, Nirmal Bang expects Monte Carlo to post numbers well ahead of industry growth. Mehta Equities says considering strong growth in the textile brand segment, Monte Carlo is well placed and connected with customers belonging to both the mass and premium categories. According to the brokerage, the challenge now is to go pan-India and expand presence across different geographies. Monte Carlo has drawn up an aggressive store roll out plan for the same which will see the company's store count grow to 275 from 192 at present. The company also continues to invest in brands in various formats. Hence, Mehta Equities expects revenues to grow on the back of a strong brand portfolio and a well established and growing distribution channel. The brokerage recommends investor to subscribe on the issue for listing gains of 15-20 percent. Monte Carlo in FY14 recorded net profit of Rs 55.3 crore (up 13 percent over FY13) on revenue of Rs 503.7 crore (up 24.7 percent over FY13). ICICIDirect expects the company to report profit of Rs 63.6 crore on revenue of Rs 585.8 crore in FY15. However, key risks according to the brokerages are fluctuations in the prices of woollen yarn and cotton fabric, seasonality of the business, high proportion of related party transactions, credit risk of franchisees and MBOs, and limited brand recognition in new market. Launched in 1984 as an exclusive woollen brand by Oswal Woollen Mills, Monte Carlo is one of the leading Indian apparel brands based on revenue. It has been recognized as a ‘Superbrand’ for woollen knitted apparel since September 2004. It 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 ‘Monte Carlo Exclusive Brand Outlets’ and MBOs, including a network of national chain stores under the ‘Monte Carlo’ brand. As on June 30, 2014, there were 196 'Monte Carlo Exclusive Brand Outlets’ in India, two in Dubai and one in Kathmandu, Nepal. It had supplied products to over 1,300 MBOs through commissioned agents. It has two manufacturing facilities in Ludhiana, Punjab, one for woollen apparel products and one for cotton apparel products. It also recently commenced in-house manufacturing of some of cotton t-shirts and thermals in April 2014. SBI Capital Markets, Axis Capital, Edelweiss Financial Services and Religare Capital Markets are the book running lead managers to the issue. Link Intime India Private Limited is the registrar to the issue.