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Monte Carlo Fashions Ltd
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Ladies and gentlemen, good day, and welcome to Monte Carlo Fashions Limited Q1 FY '24 Earnings Conference Call hosted by Sunidhi Securities and Finance Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha from Sunidhi Securities and Finance. Thank you, and over to you, sir. Thank you.
Good afternoon, everyone. Thank you so much for joining on Monte Carlo's Fashions Q1 FY '24 Conference Call. From the management, we have with us today Mr. Dinesh Gogna, Director; Mr. Sandeep Jain, Executive Director; Mr. Rishabh Oswal, Executive Director; Mr. RK Sharma Chief Financial Officer; and Mr. Ankur Gauba, Company Secretary. And now I hand over the call to the management for the opening remarks. Thank you, and over to you, sir.
First, let me thank Sunidhi Securities for hosting this earning call. It's my pleasure to welcome you all to the earnings conference call for the first quarter ended for financial '24. I would like to highlight that certain statements made or discussed over the conference call today will be forward-looking statements. A disclaimer to this effect has been included in the presentation of the results shared with you earlier. Result documents are also available on the company's website and also have been uploaded on the store exchanges. A transcript of this call would also be made available on the Investors section of the company's website after the call as well. So let me first take you all through the quarterly financial and operational highlights for the first quarter of financial year ending 2024.
The company recorded revenues of INR 139 crores, registering a growth of 22.9% year-on-year. The revenue growth was driven by a cutover sales that is dispatches and delivered to customers in March '23 and ended in April '23, sales of approximately INR 11 crore and also a provision for return calculations have reduced the provision or return impact by INR 15 crore the company made an EBITDA loss for this quarter of INR 4 crores, which was due to higher returns, which reduced our average steel realization INR 10 CR and also early summer discounts offered in the current quarter from May '23 as engaged last year in July '22, impact value was INR 8 crores. So the loss at the PAT level stood at approximately INR 12 crore. This was an exceptional loss due to a weak months of April and May.
However, the company is confident of revival of this in future quarters. On the operations front, company has opened 11 new EBOs in different regions, out of which 8 are COCO and 3 are FOFO, 5 stores were opened in the Northern region, 2 in the central, 2 in the Eastern, 1 in the Southern region and 1 in the Western region. With this, the total number of EBO has reached 366 across 20 states and 4 union territories. Now we can open the floor for questions and answer portion. Thank you.
[Operator Instructions] The first question is from the line of Danesh Mistry from First Advisors.
I just had a couple of questions. If you can just help us understand what you've said that there were higher returns, which reduced this average sales realization. So what was the returns on account of? I mean, was that on account of some goods that could not be sold? Was it some overstocking at the retailers end. That's number one.
And number 2 is that you mentioned that there was an early summer discount offered from May '23. So the point is that is the summer discount over? Or do we expect it to roll over into July, August, September quarter as well. And lastly, I'm assuming that because of these sales returns, our gross margin got hit. Or if there's any other reason on account of the gross margin, please, if you can elaborate, that would be helpful.
So the first question, see, broadly, you rightly said, there are 2 reasons for that. One is the sale return. So what happened is that the winter season of last year was bad. So the actual sell-through was less as compared to previous years. So this year, we had more returns. And normally, what happens is that when we bill the goods, we bill it on our wholesale price. But when we take the inventory back, we take it as a cost. So there is a difference of INR 10 crore, which incurred as a loss because of higher returns. And then this year, all the brands have started early sales. So we also went for early sales in the May first week and because of early sales that discount, which normally goes in June-end has started from May and June. So that has resulted in additional discount of INR 8 crores.
And yes, you rightly said some of the discounts actually would have happened in July and August quarter, which has happened in this quarter. So there will be less discount going forward. And the good thing with us is that now all the inventories for winter have already been sorted out. So whatever inventory we have, so when we bill it again, it will result in higher realizations and also the discount part as we went for early discounts. So the inventory at the retail level has come down to last year's -- below last year's level. So that is a good sign for us going forward as we have stair show which is coming up in next month. So we expect a good booking because of this basically. No inventory at the retail level.
Got it, sir. So just to understand the returns that you have talked about or nothing but the winter goods that have been returned back to you. Is that a correct understanding?
You're right. Yes, you are right.
Okay. And I remember last quarter, we had said that there were certain goods that we had said that we will not want to offer for sale because they were fresh designs and we would offer in the next -- in our Q3 period. So is that inventory still with us? Or is that also...
Yes. That inventory is still with us. And that is already being started to supply to our EBOs and our SIS and MBOs from last week onwards.
Next question is from the [ Preet ] from Wealth Financial Advisors.
I just wanted you to -- then in a little bit more detail, the inventory changes that have happened in this quarter. I mean the prior participant asked and maybe you answered a little bit about it. But basically, should we assume that you have utilized most of the inventory that is out there?
Yes, definitely. So all the inventory, which has been -- we got as a return has been allocated to various channels. So that inventory will be liquidated in this quarter and also in the next quarter.
So you should basically be seeing stocking going ahead? You should be seeing more stocking going there into the EBOs.
No. No stocking because inventory at the EBO level is, as I mentioned earlier also that whatever inventory was there were return to us, but there were some more returns from our large format stores. So that actually resulted in higher returns. So as of now, for the retail channel, whether it is large format store or it is EBO and MBO, they are having the minimum inventory. So that inventory is going to go back again in this quarter and also in the next quarter. And the best thing right now we have is that our summer sales have been very good in the last 3, 4 months, and we are having the lowest inventory in all the retail stores and also at various other channels of the discount, which was started in May onwards. So that will definitely help us in higher bookings in coming trade shows.
Next question is from the line of Dhiral Shah from Phillip Capital.
Whatever discounts that we have given in the Q1, that was for the summer sales or also some kind of winter sale?
No, it's summer sales only.
Okay. And sir, how is the current secondary sales in the market?
Yes. So the country sales have been very good. So one thing which you would like to mention here is that we are comparing our sales with other brands also. In our brand, as far as our reviews are concerned, we have seen a like-to-like growth of 15% in summer sales. So and if we take into account the new stores, which we have opened. So overall growth is around 46%. So that has helped us better sales through in this financial year also, the inventory has come down to below last year's levels.
Okay. So this is like-to-like sales of 15%, this is because of the impact of the higher discount that we have given, right?
So that is one of the factors, yes.
Okay. And sir, what I have seen that this quarter, we have opened almost 11 EBOs, but of that 8 EBOs are COCO model and only 3 are under the FOFO model. So maybe going ahead, are we focusing more on the FOFO side because that will also return CapEx from the [indiscernible] .
It's not like that. A mix will remain the same. It should be 80% FOFO and 80% sorry COCO and 20% FOFO. But yes, there will be a quarter-to-quarter variations.
Okay. And sir, what is your outlook for the winter sales now going ahead since last year winter was bad for us, and that is why we have a higher inventory. But going ahead, what is your own view on the winter sale.
See, the good thing I would say is that whenever we have a very good monsoons, it is always followed by very good winters. So that is a phenomena we have seen from last many years. And second thing, as I already mentioned, is that the inventory is low at the retail level. So when the spaces are going to happen, it will definitely help us. And thirdly, as we came to know from the market trend that many brands who are barely affected last year because of bad winters have not made much winter goods. So that would have another additional advantage for Monte Carlo as we have very good plans for the winters.
[Operator Instructions] Next question is from the line of Anil Jain from Equipassion.
I just wanted to know in the last quarter, you said that we'll provide the guidance for FY '23, '24 in the next call. So are you in a position to provide the guidance for the year, revenue growth as well as EBITDA?
No, no, we still stand by what we said in the last quarter, we said Q2. So as the summer booking is happening next month in our trade show. So we'll have an exact idea of how much will be the revenue for this financial year. So I think Q2, we'll definitely share the revenue guidance for this financial year.
Next question is from the line of Tanuj an individual investor.
My question was regarding the discounts. So as you had mentioned, the discounts had started 1 month or 1.5 months earlier this quarter, which is why our margins also took a hit. So since there are still discounts on your online website. I just wanted to ask if this would also impact the current margins of the quarter that's going on right now. So what is your outlook on present demand and sales?
So luckily, the most of the goods have been sold in this quarter. So I don't think that the discount would be as much as we've given in last financial year in this quarter. So there is a good benefit we're going to have because of early discounting. And I also think that the overall discount as a percentage-wise, it's not to be much a difference as compared to last financial year.
Okay. And also, is there any possible of margins going up because as I understand, the raw material prices also have come down. And the industry in general was facing a bad phase for retail, but now that you feel like you are having a recovery and also raw material prices are down. So is there a potential for margins to recover even better than last year? Or what is your guidance on the margins?
Yes, as of now, because we are not aware of how much discount are going into this quarter. We stand by the guidance which we gave of EBITDA band of 20% to 22%, and we sustain -- we're definitely going to sustain that band.
Next question is from the line of Dhiral Shah from PhillipCapital.
Sir, our revenue from the textile dealer, if I compare it on a Y-o-Y basis, so last year, it was like 24% it came down to 20%. So any reason for the drop in the sales from the textile side because I believe it is specifically for the home textile side.
The reason is same the discretionary spending was down, that's why the sale was down. So I think that is going to recover in this quarter and the next quarter.
Okay. And on the online part, particularly, what was the contribution of your own online channel, which we have montecarlo.in?
Just one second, please. So around 12% to 13% was from our own website and the rest was from the other marketplaces.
So what about online issues we faced in FY '23 on the other platforms. So have you got results, sir on that?
Yes, those have been resolved. So what has happened, these platforms earlier used to buy outright from us, where the discounting were in their hands. We've taken an organizational call that the discounting should be controlled by us. So for now, we'll be operating under the marketplace instead of the outright model. So the business plan and the inventory planning has been done based on that as well.
Okay. And sir, on Q1 FY '24 and what is the debt you book? Because you know that the short-term that has risen if I look at your March balance sheet. So what is the current execution.
The long-term debt is 6 years only. That's a short-term debt, which has gone up because of higher inventory and working capital. So long-term debt is around 6 years.
No, no. So I'm talking about the short term debt only sir.
The short-term debt is -- how much is -- INR 200 crores is a short-term debt.
Okay. So on a quarter-on-quarter basis, there is no change? It's part of the equation.
It has gone up because of inventory only. As I told you that inventory is there in the system. That is where the working plan has gone up, that is going to short term debt. That will normalize when we go into second and third quarter.
And we still maintain the 20%, 22% EBITDA margin that we are guiding despite of the higher discount that [indiscernible] .
EBITDA, we have also like in the first -- Q1 conference call, we have said that the EBITDA band should be around 20% to 22%. And definitely, there is a chance of improvement as well. If the fresh sales goes up in festive period, the spending is back, it can go up also or to maintain the band which we have said earlier.
Next question is from the line of Harshal Shah from AM Investments.
Can you tell us the status on the CapEx that you are doing on the home textile business? And where are we right now on that? And also, sir, what is the rationale behind putting money in the home textile business?
See, first of all, I come to the status. So they are having some procedural delays in procurement of land as various departments are involved, being agriculture land, it goes for around 9 to 10 departments. So we expect that the land would be registered most probably by 15th of September. So if we take the deadline, so it should take around 12 to 15 months to operation to start. So that is basically the status of the plant and the CapEx is around INR 100 CR, as we have mentioned earlier also. And the second rationale behind putting up this plant was, basically, we are procuring all our blankets from India and from abroad. So the margin difference is approximately 12% to 15%. So this will definitely improve our EBITDA of home textile, which is currently at around 11% to 22% to 23%. So that was the rationale behind this.
So around INR 10 crores we can make on the investment of INR 100 crores.
The total investment, including land, building and machinery is around INR 100 CR.
Correct. And what would be the asset turnover on that business?
2x basically. 2x.
Next follow-up is from the line of Tanuj an individual investor.
Yes. So even I wanted to ask about the CapEx, which has been clarified. So thank you.
Next question is from the line of Jay from [indiscernible] .
Sir, my question is regarding the outlook like what is the outlook for 2024. So amid this challenging environment right now, we are facing.
The outlook, I think we are very positive after the first quarter has ended. The revenues have increased and also the inventory is down. So and the dispatches for winter has started. But the exact revenue guidance, we would be able to give once we have our trade show, which is happening next month around Q2 financial results. So at that time, we'll be more able to give you exact guidance for the next financial year.
Okay. Sir, what is the exact CapEx for the [indiscernible] next 2 years? And what kind of percent on [indiscernible] around?
Can you please put your question again?
Yes. So my question is on the CapEx front, overall CapEx on all segments like for the future? So what is the CapEx for the next 2 years down the line? And what kind of offset like asset turnover you are going to see I mean any target there, you have mentioned?
So there are 2 kind of CapEx right now we have. Basically, one is the for existing business requirement. So that will remain as INR 15 CR to INR 20 CR per year depending upon different requirements regarding machines and warehouses. And second is the new plant CapEx, which is INR 100 CR, as I mentioned earlier. So these are the 2 CapEx which is planned for next 2 years.
Okay. Sir, my last question is, how has been the marketing costs moving in the last 5 quarters, like we have seen the cost is slightly moving. And how we should see going forward? Like is it going to be the same or same pattern have some good positives trends there.
See, when you need to see the marketing costs, we need to see at annum basis. Annum basis, again say it is 3% to 4% of our revenues. It will remain the same. So but there might be some quarter-to-quarter variations.
Next question is from the line of [indiscernible] Singh an individual investor.
I just wanted to know about the update on your Jammu and Kashmir plant sir. So what is the update on that, the first? And the second one is what is the potential revenue from that plant sir? And when we can see there's some revenue in our book on that front.
See the update I just mentioned earlier also that now the land should be registered maximum another 20 to 25 days. So then it will take from 12 to 15 months for the plant to get operational. So that is update as far as the development of this plant is concerned. And the revenue of this plant as a subsidiary, it should have 2x of revenues. So we expect 2x of revenues per annum. But out of that, INR 100 CR... Hello. So out of INR 200 CR, INR 100 CR of goods would be sourced in-house. So that would result into higher turnover, but that would result into higher EBITDA. So INR 100 CR additional sales... Yes, I hope the question answered.
The line from participant dropped. Next question is from the line of Danesh Mistry from First Advisors.
I just wanted to understand on the RM front, if you cover yourselves for the year in terms of cotton as well as the other raw materials?
We normally cover it before we go for a booking. So that always happen like that.
So safe to say for the year, we've covered ourselves on the margin front?
Yes.
Okay. All right. And is it the same as last year or better?
No, no. We are getting raw material prices at least around 20% lower as compared to last year, and the market have not changed. It's going to benefit us in this financial.
Next question is from the line of [ Gautam Das ] an individual investor.
I just want to ask one question. So maybe like if you're going at the rate of suppose 20% for the next foreseeable future, like, let's say, 3 to 4 years. Maybe a bit lesser also that is fine, 17% to 20% or 15% to 20%. What kind of PAT do you expect, like in a long term, I'm talking about long term 4 to 5 years, do you see the margin increasing and PAT increasing above 20%? Like can you give some color on that?
Yes, I think you can work it out to the PAT because we have been maintained a very consistent track record of around 20% to 22% of EBITDA and PAT was always 11% to 12%. That level we are maintaining from last, I think, more than 10 years. So going forward also, we are very particular about our margins. So we don't compromise as far as margins are concerned. So going forward also, I would again say the same thing that we have maintained that we'll be putting us as in a band of 20% to 22% EBITDA. Even though the market is tough right now, which is not a usual case for a normal year, but still, we are very confident that we would be able to go into this plan going forward also.
So what I was basically trying to find out was, is there a possibility like 4 to 5 years down the line that your margins might increase, like as you develop your brands and as the brand awareness increases, would you be able to charge a higher margin to the customers? Like once Monte Carlo becomes a famous brand across India, like it is, obviously, but I'm just saying when it becomes a more famous brand, is there a possibility that you would be able to charge a premium for which your PAT might increase? So basically, your PAT growth would have been higher than your revenue growth. Is there any thoughts around that?
See, the good thing about Monte Carlo is that. So whenever there was any hike in raw material, so we have such a good brand recall and brand image and aspiration is very strong in the market. So we have been able to pass on all the hikes what happened there in the past for prices. So going forward also, as we go forward, so not all the cost increases. So definitely, when overhead comes down and other costs come down, there is every chance of improvement of margins when the sales increases.
Got it. Okay. And one last thing. So do you have any plans for premiumization of our products like maybe like the clothing that you're making right now, do you want to increase the -- or make it a premium brand? And like is there a possibility that you will go to that side of the business, like a more premium business?
Fortunately, we are already working on a premium segment, but we also have a brand which is Luxuria, which is a more premium brand of Monte-Carlo which falls almost 30% to 40% price higher than Monte Carlo. And that brand is also actually gaining acceptance in the market at various channels, it's sold at MBOS also, SIS also and EBOs also and that brand has also grown to approximately INR 30 CR in this financial year. And it's gaining almost 30% CAGR of last 2 years.
Okay. So it is increasing at a faster rate than the parent Monte Carlo brand, right?
Yes, because base is small so that is why the growth rates are higher.
Yes. So I'm expecting that might lead to a bit of margin expansion as you -- as the proportion of luxury brand increases to your total revenue. Like that...
That's one part of business, but other business is also getting acceptance like Rock It brand is improving year-by-year. Cloak & Decker is improving their sales year-by-year. Home Textile is also improving and maintaining its margins from last so many years. So I think all the business -- existing businesses as well as some of the new initiatives which the company has taken. All together, we are very confident that we'll be able to maintain our margins and there is every chance of improving also.
So one more thing, the Home Textile business that you guys would be selling? Will it be in your own EBOs or will you be selling it outside? And what would be the margin color on that? Like will it be similar to your parent company?
Just to give you a more clear picture. Right now, this Home Textile is sold to all the home textile stores. So it's not sold on EBOs. It's not sold on the present MBOs which Monte Carlo preach. So it has a separate outlets altogether, which only deals in home textile goods. So it is sold in that channel. But in the future, we do have a plan of opening exclusive stores for Monte Carlo Home Textile also, which we are working on right now.
Next question is from the line of Viraj Bari from Carnall and Asset Management.
Congratulations on your results, sir. Just one question. Apologies if I'm repeating because I joined the call a little bit late. So in terms of our at leisure segment, as you mentioned, Rock It, are we talking about getting it on the off-line channel in this year, like translation online to off-line. So can you speak a bit more in terms of how this brand we are using to grow in '24 and '25, like in terms of our marketing, in terms of our target top line, some more color on that? And whether we are having exclusive outlook for [indiscernible] Are we trying to integrate them into existing stores.
So Viraj, as you rightly mentioned, we launched these products in the offline segment from this current summer, and we've got -- we did a mix of performance as well as a pleasure there. We've got a very good response as far as our MBO markets are concerned. We've also placed some the Rock It products and around 40 to 45 EBOs of Monte Carlo, where we've got good acceptance and the sales through percentage is comparable to the Monte Carlo products. So if I'm comparing in terms of acceptance and sales through, it is comparable to Monte Carlo. Last year, in the first quarter, we did around 47 lakhs of turnover under the brand. This year, we've done around INR 4.5 crores. If I look at the total financial year as we do this year. This year, I think for the entire financial year we're looking at between INR 15 crores to INR 20 crores of turnover from the offline and the online segment combined for this brand.
Okay. So it would have to set a bigger faster-growing segment right now in our company.
Sorry?
Is it right to say that Rock It, the at leisure segment is the faster-growing segment in the country as on date?
You can say it because the base is very small right now in terms of percentage, you might be right, but the values won't be comparable. Because...
In terms of FY '25, '24.
Yes. So I have the figures. Last year was around INR 8.3 crores of turnover that we did from Rock It. This year, we'll do around INR 18 crores to INR 20 crores and we are looking at growing it at a CAGR of 30% to 35% for the next 2 to 3 years.
Next question is from the line of [ Gautam Das ] Individual Investor.
Just a follow-up. So like as you said from the last part. So I just wanted to understand what is the margin profile for your Rock It brand. Like basically, I will try to say like what I'm trying to understand here is that, like I understand that there are a few smaller brands that are growing faster than your company's rate. I just want to understand what is the margin color for these smaller brands, like you said, Luxuria and Rock It. So I just want to understand what is the margin color for the brands, which are growing faster than your mother brands.
Sure. Understood. So we have 3 smaller brands just to clarify. One is the Luxuria, which is in the premium segment. One is the Rock It, which is underperformance and athleisure segment; and the third is Cloak & Decker which is in the value segment. So all 3 of these brands, we are targeting to grow them at a 30% to 35% rate. When I look at the margins, they are almost comparable to the margins of Monte Carlo. There's not that much of a difference in terms of margin contribution under the various brands.
Got it. Okay. And if I just ask for a long-term view, like 4 to 5 years, how do you expect the company to grow like as a whole, like the consolidated revenue? How much do you expect it to grow. Can you give me a range like 20% above 20% below 20% outlook?
See, it all depends on the economy. If we see that the economy is growing at around 7%, we can easily outgrow the economy by 2x or 2.5x.
As there are no further questions, I will now hand the conference over to the management for closing comments.
Once again, thank you very much to Sunidhi Securities also for arranging this conference. Still, if there is any question which is unanswered or it's not like we are not ready. So you can always give all these questions to our IR manager at Valorem Advisors. Thank you very much.
Thank you very much. On behalf of Sunidhi Securities and Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.