Monte Carlo Fashions IPO-Should we invest?

Monte Carlo Fashions IPO-Should we invest?

Punjab based Monte Carlo Fashions IPO would hit the market on 3^rd December, 2014. Monte Carlo made 10.7% profits in the last financial year (FY 2013-14). Revenues jumped by 38% in last 2 financial years. There are several positive factors in Monte Carlo Fashions IPO. Can we invest in a Monte Carlo IPO? What are the negative points to be considered before investing in Monte Carlo Fashions Limited IPO?

About Monte Carlo Fashions Limited

Monte Carlo Launched in 1984 as an exclusive woollen brand by Oswal Woollen Mills. In 2011, Monte Carlo got demerged as a separate entity.  

Monte Carlo Fashions have 190 exclusive outlets, of which 80 are company owned. As part of our growth strategy, the company has a target of establishing 275 'Monte Carlo exclusive brand outlets' by the end of fiscal 2017. The company operates two manufacturing facilities in Ludhiana at Punjab, one of woolen apparel products and one for cotton apparel products.

Monte Carlo Executive Director Sandeep Jain says “We are planning to penetrate further in the western and southern regions of India”.

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Issue details of Monte Carlo Fashions IPO

• IPO opens: 3-December-2014
• IPO closes: 5-December-2014
• Face Value: Rs 10 per share
• Price Band: Rs 630 – Rs 645 per share
• Minimum shares to be applied: 23 shares and in multiples of 23 shares thereof
• Minimum investment: Rs 14,490
• No of shares issued for the Public: 54.33 L Shares
• Issue size: Rs 350 Crores approx.
• Lead Managers: SBI Capital Markets Limited
• Listing: BSE and NSE
• Download Monte Carlo Fashions IPO Prospectus from SEBI website here

Purpose of the IPO

• The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges.
• Sale of Equity Shares by the Selling Shareholders.
• Company expects that the listing of the Equity Shares will enhance visibility and brand image among existing and potential customers and provide liquidity to the existing shareholders.
• Company will not receive any proceeds of the Offer and all the proceeds will go to the Selling Shareholders

Company Financials

• Company generated revenue of Rs 375.38 Crores for the year ended Mar-12 and Rs 518.89 Crores for the year ended Mar-14.  It earned revenue of Rs 79.23 Crores for 3 months ended Jun-14.
• Company posted a profit of Rs 49.45 Crores for the year ended Mar-12 and a profit of Rs 55.3 Crores for the year ended Mar-2014. It earned a profit of Rs 8.51 Crores for 3 months ended Jun-2014.
• EPS for FY2014 is Rs 25.45
• Weighted Average EPS for the past 3 years is Rs 24.95

Reasons to invest Monte Carlo Fashions IPO

• Good revenue growth of 38% in last 2 years.
• Consistent profits in last 3 years. It earned 10.7% profits in FY 2013-14.
• Good brand image makes it unique among the competitors.

Reasons not to invest in a Monte Carlo Fashions IPO

• Business is subject to seasonality, with a significant portion of revenue generated primarily during the third quarter of each fiscal year. Lower revenues generated during the third quarter of a particular fiscal year may result in a material adverse effect on the operations and business of the Company.  Revenues in this year for 3 months ended Jun-14 show less and are only Rs 79.2 Crores. However since third quarter revenues would be high, this may not be right comparison.
• If they are unable to maintain and enhance the ‘Monte Carlo’ brand, the sales will suffer which would have a material adverse effect on results of operations.
• Cost of production is exposed to fluctuations in the prices of woollen yarn and cotton fabric as well as its unavailability.
• It operates in a highly competitive environment and may not be able to maintain market position, which may adversely impact business, results of operations and financial condition.
• It relies on certain Group Companies, including Oswal and Nahar Spinning Mills Limited, for procurement of raw materials and outsourcing the manufacture of certain of our apparel, and any potential conflicts of interest pursuant to such related party transactions could have a material adverse effect on the business, financial condition and results of operations.
• It has limited experience operating as an independent company (demerged in 2011 only) at the current scale of operations and if it is unable to manage its operations at current size or to manage any future growth effectively, brand image and financial performance may suffer.
• Its operations and revenue is currently, primarily concentrated in the northern and north-eastern regions of India and the inability to retain and grow business in other regions of India may have an adverse effect on its business and prospect.
• There is outstanding litigation involving company, the Promoters, the Directors and the Group Companies, which, if determined adversely, may affect their business and operations and reputation of the company.
• It has negative cash flows in previous financial years. This indicates that it need to borrow loans for high rate of interest and has difficulty in managing working capital requirements. This would affect the profits of the company.
• Some of its Group Companies have incurred losses in previous financial years. This indicates poor promoter performance in some businesses.
• Complete risk factors can be read from “Risk Factors” section of the IPO prospectus from page no. 11 onwards.

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Recommendation / Investment strategy

• On an issue price of Rs 645 per share (upper band), based on EPS of Rs 25 (approx for both FY 2013-14 or for the last 3 years average) P/E ratio works out to be 25.8. Its competitors P/E Ratio is  50.78 (Highest-Zodiac Clothing Company Limited) and 31.63 (Lowest-Kewal Kiran Clothing Limited) and the industry composite is 41.21. The issue price of Rs 645 per share in upper band looks reasonably priced.
• Monte Carlo Fashions IPO has several positive factors. Good revenue growth, consistent profits and good brand image are some of the positive factors. Seasonal business, limited operating history (3 years) as an independent entity and other risk factors indicated above are negative points. Considering these factors, I would personally like to invest in this IPO.

Readers, what is your view on the Monte Carlo IPO? Are you subscribing for this IPO?

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Suresh
Monte Carlo Fashions IPO

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Suresh KP

Founder at Myinvestmentideas.com

Suresh KP is a seasoned financial expert with over 20 years of experience. He is NISM Certified Investment Adviser and Research Analyst. For more about his expertise and certifications, visit About Suresh KP

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