Monte Carlo Fashions Ltd
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Monte Carlo Fashions Ltd
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Ladies and gentlemen, welcome to the Q3 FY '23 Results Conference Call of Monte Carlo Fashions Limited, hosted by Emkay Global Financial Services. We have with us today from the management of Monte Carlo Fashions, Mr. Dinesh Gogna, Director; Mr. Sandeep Jain, Executive Director; Mr. R.K. Sharma, Chief Financial Officer; and Mr. Ankur Gauba, Company Secretary. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Ms. Bhavika Choudhary from Emkay Global Financial Services. Thank you. Over to you, ma'am.
Thank you. Good morning, everyone. I would like to welcome the management and thank them for this opportunity. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.
Very good morning, everyone. And thank you for joining us for this earnings call of Monte Carlo Fashions Limited to discuss the financial and the operating performance for 9 months and the third quarter performance of financial '23. I would like to highlight that certain statements made or discussed over the conference call today will be a forward-looking statement. A disclaimer to this effect has been included in the results presentation shared with you earlier. Result documents are also available on the company's website and also have been updated on the stock exchanges. A transcript of this call would also be made available on the Investors section of the company's website.
First, I would like to talk about the macro environment. The Indian economy has rebounded strongly despite the significant COVID-19 waves. Financial '23 has seen a solid showing of Indian consumption story returning in full force. And we have also witnessed better than pre-COVID performance. All our stores across geographies continue to be fully operational and the strong brand pool of Monte Carlo is drawing in solid footfalls and generating sales growth.
Indian domestic textiles and apparel market is expected to grow 10% CAGR to reach INR 190 billion by 2026. And the shipping consumer preferences towards branded apparel give us ample scope for growth. Now let me share the financial and operational highlights of 9 months of quarter 3 of financial '23. The company reported revenues of INR 519 crores during quarter 3 financial '23, as against INR 462 crores during quarter 3 financial '22, thus registering a growth of 12.4% year-on-year. Operating EBITDA for this quarter was INR 130 crores and as against INR 114 crore in Q3 financial '22. The profit after tax stood at INR 86.3 crores as compared to INR 77.5 crores in Q3 financial '22. Revenue from operations, 9 months stood at INR 881 crores as against INR 742 crores in 9 months financial '22, growing by 19% year-on-year. Operating EBITDA was INR 185.4 crores in 9 months as against INR 157.7 crores as compared to last year. That is a growing 18% year-on-year. PAT stood at INR 112 crores in 9-month financial '23 as against INR 101 crores in 9 months financial '22, growing 12% year-on-year.
Our balance sheet remains robust, and we continue to enjoy a net debt-free status. We have got a cash balance of INR 265 crores, which comprises of cash and bank balance, along with the current and noncurrent investments. Long-term borrowing is INR 5.85 crores as of December '22 compared to INR 8.3 crores of March '22, which shows our efficiency in serving the debts.
Monte Carlo Fashions continues to be this endeavor to build a leading branded apparel company with a well-diversified product portfolio, such as cotton, woolen, kids, and home furnishing. Apart from the Cotton segment, we also produce different other garments. We also produce cotton T-shirts in the economic category under the brand Cloak & Decker the ability to tap various market segments, provide the companies with tremendous opportunities growth in the coming years.
The key strength is wide and growing distribution network when we had diversified presence across India. The company's product reaches the end users through different distribution channels. The company currently has 2,670 MBOs plus SIS 347 EBOs, 788 national chain stores. Concerning online sales, we are looking to focus more on selling to our own portal. However, clothes are available on various e-commerce websites such as AJIO, Amazon, Flipkart, Myntra, FirstCry, Jabong and Kapsons.
The company has opened 30 new stores in different regions. Out of which, 7 stores were opened in northern region, 2 in central, and 4 in eastern region. With this, the total number of EBOs has reached approximately 347 across 20 states and 4 union territories. The company maintains its yearly guidance of opening 40 to 45 new stores as informed earlier.
The trade show for September '23 conducted in September '22 witnessed healthy traction, helping to build a robust order book for summer. The company continues to enjoy its strengthened position in cotton, woolen portfolio simultaneously has building resilience and strength in its operation.
Most of our net revenue is from franchise EBOs and MBOs where we primarily sell on outright basis. Under the business model, there is no significant inventory risk, and we remain insulated from the average hazard sales in a branded apparel business.
I would like to highlight that to date, we have experienced almost 0 bad debts in our business, which stands as a testimony to our robust business model based on 0 credit risk policy for the company.
At Monte Carlo, we tried to provide our customers with finance closing through product innovation, high-quality and the launch of new collections from time to time. Moreover, we continually work towards changing the look and feel of our stores to give our customers the best-in-class experience. We're optimistic about our future growth and earnings potential. We believe that we have a strong foundation for the future, which we will provide with sustainable and profitable growth for the long term.
While our focus will be to maximize revenue growth going forward, our considerable interest is to build profitability by maintaining cost control measures.
To further enhance the recall and the viability -- visibility of our brand, we are focused on advertising by different platforms like televisions, online and retail channels, national and regional newspapers, hoardings and billboards, displayed at airport and cinema.
Monte Carlo maintained its first-mover streak to implement digital solutions in the industry. We're also pleased to share that in line with our digital focus to build robust process and to enhance our customer experience, the company has implemented SAP S4HANA solution, fashion and vertical business. This is an intelligent ERP providing realtime insights in all areas of business and a predictive consumer trend insights. This will enhance the flexibility and agility to deliver end-to-end customer experience and at the same time to achieve significant bottom line cost savings.
Now we can open the floor for questions and answer sessions. Thank you.
[Operator Instructions] The first question is from the line of Rahil Shah from Crown Capital.
Just one question regarding the outlook for the next financial year in terms of your revenue growth and your EBITDA margin. How do you expect the business to build over for the next year? If you have any views on that?
Thank you. So as far as the forward-looking guidance for next financial year, we normally give once we have the fourth quarter results because in that case, we do get the inventory at our retail stores, at our warehouse. Also, we have a trade show which normally happens in March. So we'll be in the best position to give the forward-looking guidance and for the EBITDA margin once we have the final results of next quarter.
Okay. But overall as an idea, you do expect the growth using so far to continue on the similar lines if I had to ask?
Definitely. There's no doubt about that. We see that -- we have been -- see last year, we grew around 40%. And this year, we grew -- will be around 20%. So we think that this momentum will keep going on because we had a very good winter this year. And also, we expect that the retail inventory should be as of last year level. So we don't see any challenges going forward. And I think macros are also now very favorable as compared to last quarter.
Okay. Okay. So you do expect the current run rate to continue, which is a positive sign. Yes. Okay. So thank you and wish you the best.
Thank you.
The next question is from the line of Deepan Shankar from Trustline PMS.
Congratulations for a good set of numbers. Sir, firstly, I wanted to understand. So woolen, do we foresee some more growth extending to Q4 due to extended winter?
Normally, USS happens in Jan, Feb. So the woolen is definitely the sale is on so this sale will be closed by 20th of February. But at the same time, the summer dispatches have started. So the major contribution from the fourth quarter would be from the summer sales.
Okay. Okay. Okay. And how is the inventory level for woolen products in the market? And also how is the discounting season happening for Q4 for woolen?
Inventory levels, we will only come to know once we have around 15th of March, but we think that it has come down to last year's level, seeing the sales trend which has happened in January and February. And we are very hopeful that even it can go down before the last year's level.
Okay. Okay. Okay. And what is the specific reason for a 16% decline in online sales, sir?
See, I think some dispatches have been delayed, and there is one more reason that. Actually, one of our customers who was outright buyer. So they shifted to consignment sales. So in that case, some of the order, we have to miss in that case. So that was actually -- that affected this quarter. But we're hopeful that it will start picking up from the next quarter.
Okay. Okay. Okay. And we have seen this advertisement expenses has been higher for Q3 and 9 months. So do we expect this INR 33 crores, INR 36 crores yearly run rate to sustain now on?
See we were previously doing 3% to 4% advertisement only, so on COVID in last 2 years, we brought it down to 1% to 2% to save cost. But now we think that to enhance our brand visibility and also to enhance our presence in south and west. We need to do around 3% of advertising. That's what the company did in this financial year.
Okay. Okay. Okay. So lastly from my side. So this Home Textile and Kids segment growth has been lower. So any strategic reason or do you expect in the coming quarters to pick up?
We guided for 30% growth in Kids and Home Textiles segment, and we'll be achieving that in good financial year.
The next question is from the line of Devanshu Bansal from Emkay Global.
Congrats on a good set of numbers. Sir, I wanted to check winters this time around were delayed. So in December, winters were not that cold, as well as Holi is a bit earlier this time around. So you have alluded to this, but I just wanted to understand better? Do you expect higher discounting this time around just because Holi is also a bit earlier?
You're right that the winters were delayed. So the USS sales have started. And also, there were more discounts as compared to last financial year. But we have a lot of cushion as far as our pricing is concerned, and I think that we have already done the adequate provisioning to safeguard ourselves as far as the margins are concerned.
So this provisioning impact has already been taken in Q3 or it can come in Q4?
It's already been taken in Q3.
Got it, sir. And there were also indications that from an entire company point of view, that there was mixed sort of growth trends during the quarter with October, December being good and November being a little weak. So do you also expect some sort of a postponement of that demand into Q4?
No, no, I didn't get your questions properly. Can you please repeat it.
Sir, this time around the general feedback that we are getting is that October and December was good, but November a very sort of weakish growth trend. So I was asking since January has also been a little colder, so do you expect some of that demand to happen in Q4?
Generally it has been exceedingly, it was exceeding our expectation. You were right that October was strong and December strong and November was little weak. But I think January, we grew almost more than 30% at our retail stores. So the demand was very good because of delayed winters and extreme winters. So that is why we have been able to lower down our inventory as I said earlier also.
Correct. And sir, what is the extent of price hikes that we have taken over the last 2, 3 years. So I just want to understand when higher prices can also impact demand due to higher inflationary environment. So what is your sense on that?
See as far as this year is concerned, we took a price hike of almost around 8% to 10% in our winter wear category. And in the summer wear category, it was around 5% to 7%. And if we go last year, again, it was 5% to 7%.
So it depends on -- normally, if you see on average, we increased 5% to 6% prices every year depending upon the raw material and other cost increases. But last year was exceptional where the raw material price have gone up very steep hike. So we have to increase our price around 10% to sustain our margins.
Correct. And how is the RM situation now, sir?
Now, I think I'm very glad to share that the price of raw material has come down. So it is going to benefit us going forward in next financial year. As the raw material quality prices are going down every year, so I think we're going to benefit between lower cotton prices, lower wool prices.
Okay. So you don't intend to sort of take a price cut and whatever the improvements will be there through a decline that should come in a gross margin? Is it a good understanding?
No, no, no. The price once it is absorbed the price accepted by the consumers and the consumer is happy, which was no point of cutting down the prices. So normally, if it goes up 2% to 3% every year because of certain costs are getting up. So we're not going to cut any prices going forward other costs.
Last one from my side. I just wanted to understand how does this movement for online channel from outright sales to consignment-based sales impact the unit economics of this time. So I want to understand will, so obviously, however, I guess, working capital will be higher, but we will be making some higher margins. So just wanted to understand this understanding is correct.
There's nothing to worry about there. It contributes only 4% to 5% of my turnover. That is very, very less. And the channel is just quite 5% of outrage sales and 1% isn't going to make any significant difference as well as our revenue and margins are concerned.
Okay. But still, sir, in consignment model, how are the unit economics different than outright sales?
Consignment models are a little less 100, 150 basis points as compared to outright sales.
The next question is from the line of Nitya Shah from KamayaKya Asset Management.
Congrats on a good set of numbers. So I wanted to understand in the past we have hired Andre Russell, the Cricketer as part of advertising campaigns, and now you spoke about the fact that the margin going forward will also improve due to lower raw material costs. So I just want to understand, are you planning to increase your advertisement expenditures as a percentage of revenue? And what are your advertising plans in the future, do you plan to hire any more celebrities for better brand awareness and so on? So I just wanted some guidance on that.
Yes, sure. We would like to keep our margin -- advertising guidance for 3% as far as revenues are concerned. And yes, we are thinking of including one celebrity also in our ad campaigns going forward. So when that will happen, we'll definitely inform in our next conference call.
The next question is from the line of Vikas Khemani from Carnelian Asset Advisors.
Congratulations on a good number. If you quite -- one is that could you share what's your store opening target next year because I think we only exceeded what guidance you gave. So how are you thinking about next year or maybe next couple of years? It's good to hear actually? That could be a good extra growth as we are still very, very underpenetrated in the last part of India? So some more concrete guidance on that would help.
Vikas, your voice is breaking, but as I understood the question, clearly that you wanted to ask how many stores opening plans we have for the next financial year and see -- and strategy also. See, I think this year, we opened around 40 stores to 45 stores, which we are on the track of achieving that guidance. So next year, we are increasing our guidance to 50 to 60 stores as far as store openings are concerned. And also, we are putting a lot of focus on south and west. And we assume that at least 20% stores will come in south and west out of the new store openings.
Right, right. And secondly, we have now a lot of cash, like sitting in our books, which, obviously, will drag on ROE. And you've been with almost INR 120 crores, INR 130 crores cash at the year again now. So any plan to do any buyback dividend because you last, you did was only '19. So it's been like 3, 4 years now. So what's the plan of cash which you gave on the balance sheet?
See, as I think we have discussed in our last financial call also that this year, CapEx will be huge because we are putting up a earnings blunted plant and quilt plant at G&K. So some of the cash will be used because not everything we are taking on debt. So as far as land and building is concerned, as with no interest prevention scheme on there, so we are putting our own money in landed building, so that would...
Wholly owned subsidiary.
In wholly owned subsidiary, so that would be on INR 40 crores, INR 50 crores. So some of the cash would be used over there. And yes, definitely, we are a dividend-paying company and paying handsome dividend every year. Dividend will be shared with the shareholders.
And also, if there is any plan for any buyback and anything, that all can be discussed in the Board meeting, but that has not discussed yet. So if there's any plan definitely, we'll let exchanges know about that.
In due course of time, we will inform you.
We have the next question from the line of Danesh Mistry from Investor First Advisors.
Congratulations on good numbers. It's hearting to see that your gross margin has been improving as you had guided in the beginning of the year. Sir, just a couple of questions. The first is on your other expenses. If you can just help us understand what has driven these other expenses this time around? Because remember, last year, same quarter, Q3 FY '22, we had the CSR expenses in the base. So this, and last quarter, you had said that now you are amortizing some of these expenses. So what was the reason behind this 25% increase in other expenses. That is question number one.
I think in other expenses, if you see the major cost is advertising, so which was a...
I mean without advertising.
So advertising has gone up from INR 8 crores to INR 15 crores.
INR 28 crores. Yes.
And No. I see for the quarter, I'm saying, sir, but if you.
I think all other expenses are normal. Advertising cost, which has likely cost higher, it was little high and business promotion expenses also have gone up in 9 months as compared to last financial year. Otherwise, all other expenses are in the line, 7%, 6% was last year and 16.2% is this year. So it's in line.
Okay. No, I was to understand on a quarterly basis. If you see Slide 10 of your presentation, there you've actually said that in Q3 FY '22, other expenses of INR 47 crores, they are now close to INR 57 crores. So is there any one-off in that as well is what I'm trying to understand, sir, in the quarterly number?
Sorry, we see the percentage-wise it is 10.16%, 10.9%. So it has gone up accordingly these have gone up.
Okay, sir. Understood.
Yes, 16.2% has become typically.
Okay, sir. Understood. And sir, in terms of this, you mentioned that Jan, you had a good sale of your inventory given that you had some winter spillover, so is it possible to share the current debt number that we have, sir, on our books, the gross debt, even it is from potentially.
The long-term you are asking?
Both sir, long term as well as the short-term working capital, sir.
Yes. So long-term debt is just INR 5.8 crores only. And the short-term debt is INR 200 crores.
INR 200 crores.
INR 200 crores. Okay. Got it. And in September, sir, what was the figure?
Just wait for a moment.
Long term and short term?
Sir, long term, it was only INR 7 crores.
How much was short term?
Sorry, yes. And short term was approximately INR 150 crores.
INR 150 crores in September.
In September. So our debt paydown will still happen in the short term. Is it this quarter?
Yes, working capital likely, we are using basically, this becomes very heavy in September and December quarter. It comes down in the March quarter. So we would see that in this quarter, it would come down to INR 50 crores short-term debt.
Got it. Understood. Sir, right now, sir, what is the cash on the books?
INR 265 crores.
INR 265 crores. Okay, sir. Thank you and wish you the very best of luck.
Thank you.
The next question is from the line of Govindlal Gilada, an Individual Investor.
I got only one question. The finance cost has gone up substantially, any specific reason, sir?
Pardon?
Finance cost both of the ROI and...
Finance cost is because of two reasons. One is the interest rates have gone up, and secondly, utilization has gone up as the sales have gone up.
Interest rate not maybe substantially gone up. What you see year on year...
Mr. Gilada the line for you is not very clear. I request you to please use the handset.
See the utilization has gone up. And secondly, the interest rate was also higher as compared to last year. So that is where the finance costs have gone up. These are the only two reasons for this. And you see the percentage wise it is just 1.55% last year, it is 2.16% this year.
No, H2 it has gone up 128% from INR 4 crores to INR 10 crores.
Yes. That's the reason the interest rate hike and a more utilization as compared to last year is the reason.
So this run rate will continue, sir?
No, I think the interest rates have stabilized now, and I think it will come down going forward. So definitely, it will come down. And also, I think utilization will also come down.
But, debt is almost something around INR 200 crores and INR 200 crores quarterly interest INR 10 crores is, I think, working capital also, we are using more, I don't know.
See what we can do is we can separately share with you the cost of interest and also how much financial charges are extra as compared to last year, depending on these 2 factors.
The next question is from the line of Dhiral from PhilipCapital PCG.
Sir, as you said that next year, you to increase 50, 60 new stores. So however, if you're still planning to only 20% in the south and west region, so on the overall basis to south and west still contribute minimum to the overall revenue?
If you see the contribution from south is just 3% and 4%. And we are adding 20% more store sales compared to -- 20% of total stores. So you think that this is how we are penetrating more in south and West. If I see percentage-wise, it should be only 5% of the total stores, which should open in south and west. But to increase our presence and to penetrate further, we are making a 20% of the total stores open in south and west. So that definitely shows the intention of the company and how they want to grow in south and west.
But sir, why then at a slow pace, just 20% and why not so maybe at a higher pace because our presence in that region is very miniscule.
Sir, I think you're not getting my point. What I'm saying is that right now, the sales contribution from south and west is just 7%. And the sales contribution from north and east is 80% -- 93%. So when I say 20%, it means I'm 2.5x I'm doing the sales, try to do here in south and west as compared to northern regions. That is why I'm saying 20% of the stores, new store will be open up those regions.
Okay. So sir, let's say next 3 to 5 years, what kind of south and west revenue, it can contribute to the overall pie? What is our target for that?
See, I think I can say that we see last year, the contribution was around 5.95%. And this year, it is going to be, I think, around 8%. And going forward, in the next 3 years, we should need to touch, I think around 15% of our turnoff from south and west.
15% to 20%.
Okay. Okay. And sir, as you're guiding to open 50, 60 stores from 40, 45 stores, so what gives you this confidence to grow at very higher pace? So is there any indication for that, sir? Any...
I think it's only that we see the potential for Monte Carlo to grow in some of the areas where we are not present. And definitely, as we said earlier, there is south and west where we were opening just 2 to 3 stores we are opening now 10 to 15 stores, so that is giving us the confidence to open more goes in those areas where we are doing well, and we are getting good response. So that is why I would like to explore those areas, where we can be present more aggressively.
Okay. Okay. And sir, what will be the CapEx guidance for FY '24 and the remaining part of FY '23?
CapEx, I think as you already know that we have a bank-banked manufacturing plant, which is coming up in this financial year. And also, some of the expansion will happen in next year. So we think that going forward, we would have a CapEx of INR 125 crores including the normal CapEx of Monte Carlo and the additional CapEx.
[Operator Instructions] The next question is from the line of Akshay Kothari from Envision Capital.
So I had some questions. Do you have any debt stock?
We don't carry debt stock. We normally get rid of inventory by 31st of March. And whatever stock is either we sell it to some of the people at a very, very discounted price or we write it off.
So when selling it for discounted price won't that dilute our brand.
No, no, no. It's like we cut our labels, and we give it to some of the people who sell the lots. So that is just around 10% to 12% of the MRP in that case, when we sell it to the people who are selling at their own outlets. And there are some outlets in northern region also where we sell out these merchandise. And we make sure that it doesn't get disturbed in my existing channels of MBOs and EBOs.
Okay. Some other brands also do that aware of these factors. But people are generally aware this Monte Carlo [Foreign Language] sale generally it happens once in a year. People would wait for that sale, right?
Yes.
So isn't it affecting our sales in the prior period just before the sale?
There are customers who don't want to -- who don't see that when the sale is coming. So they have the high disposable income. So they go and purchase any time whenever they want. So there are those kind of customers who comes in October, November and December. Then definitely, there is a value customer who thinks that you only want to purchase when the prices are less. So there are 2 kinds of customers, and we are dealing with -- we are happy to sell to both customers, and it's for all the brands. It's not for Monte Carlo. It's a worldwide phenomena.
Okay. And sir, how many sales seasons do we have here?
We have 2 sales periods. One is for summer USS. and second for winter USS. There are no in between mids, sales. If we don't do any mid-summer on mid-winter sales. It's only 2 sales.
Which months would be those?
Normally, summer sales happen in July, August and winter sales happen in Jan, Feb. Jan and 15 Feb, till 15 Feb.
Okay. And so do you any expect any improvement in working capital cycle?
Working capital will remain like that only. We are in such a business where we have heavy third quarter and so working capital remains like that. It comes down in fourth quarter.
And sir, we are called in to manmade fibers, right?
We do use manmade fiber.
So when you are saying cotton, so it is not pure cotton, which we are selling. It must be a mix, right?
That's a mix. There are garments who are made of cotton and polyester also and there are garments who are made only of cotton. So we use both kind of fabrics.
Okay. Sir, advertisement expenses, where are we actually advertising? Is it some ROI-based advertisement?
Definitely, it's ROI-based advertising. We are doing ATL and BTL activities, above the line and below the line also. We are present in digital. We are presenting in TV. Also, we are present in theater also. We are present in hoardings also in outdoor media we're also doing print advertising. So all kind of tenders we are exploring and also some OTT apps and other apps where we are making our presence felt.
I visited one of your stores in Borivali West, for the price point which offering, aspirational value wasn't there. Only the store was not -- there was no very good response in terms of -- I visited on a Sunday. So I understand it is just starting for us in west and south region. But for the price point which you are offering, some of the very premium foreign brands are also offering. So what is the aspirational value which we are trying to create?
I think the simple answer is that if my customers are accepting the price, then only were able to sell on MRPs in all the regions. But I'm not sure about how you perceive the aspirational value of Monte Carlo, when you visit stores. But normally, as I said earlier, that the Western region, we don't have that much of a presence, so that is why the customers might not even recognize Monte Carlo as high a brand as it's being recognized in northern and eastern region. So that might be a difference.
Yes. That's what I'm trying to ask you. In western region, there was -- for the same price point, I can go for -- so my only point comes over here is, are we going from that sort of strategy to cater to west and southern market?
See, we are competing with all the brands as far as our summer range is concern. We are very, very competitive. I think you might have taken for a buying the winter themes, which is little expensive than others. But as far as summer products are concerned, we are very competitive if you see all T-shirts, trousers, denims and all, they're at least competitively priced with all the Madura brands, Raymond brands, Arvind brands. You can compare our prices with them.
And definitely, in winter wear brand also, if you compare our pure gold sweater with their pure gold sweater of Uniqlo or H&M, our prices are more competitive. But if you compare my cable sweater with woolen sweater, then definitely they are a little expensive.
The next question -- that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Yes. Thank you very much for, so if you have any queries or any questions, you can please write to our IR agency, Dickenson and also our CFO, Mr. R.K. Sharma for further clarifications or any of the queries you have asked. Thank you very much.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.