Monte Carlo Fashions Limited (MONTECARLO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '26 Earnings Conference Call of Monte Carlo Fashions Limited, hosted by Emkay Global Financial Services Limited. [Operator Instructions] I now hand the conference over to Mr. Yuvraj Kunwar from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Good morning, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today, Mr. Sandeep Jain, Executive Director; Mr. Dinesh Gogna, director; Mr. R.K. Sharma, Chief Financial Officer; and Mr. Ankur Gauba, Company Secretary. I shall now hand over the call to the management for the opening remarks. Over to you gentlemen.

Very good morning to everyone, and thank you all for joining us for today's earnings call to discuss the performance for second quarter and first half of financial '26. Let me start by sharing the financials and operational highlights. For the second quarter under review, the company has reported revenue of INR 249 crores, registering a growth of 13% year-on-year. EBITDA for the quarter was INR 42 crores, representing a growth of 47% year-on-year. EBITDA margins were reported at 16.73% versus 12.88% in the same period last year. So net profit stood at INR 16 crores for this quarter, which almost doubled as compared to last year. So talking about the first half of financial year, the revenue from operations stood at INR 387 crores, which has increased 12% year-on-year. EBITDA was around INR 36 crores, witnessing a growth of around 37% year-on-year with EBITDA margin reported at 9.2%. The profit after tax was INR 4 lakh as against a loss of INR 5 crores in the corresponding period last year. We saw a strong rebound in the sales across most categories. Our Rocket brand delivered yet another quarter of consistent performance. The Home Textile segment also maintained its robust growth trajectory, supported by healthy demand across all categories. Online sales also continued to show strong momentum, particularly through our own website and reflecting the growing customer preferences for our own digital channels. We remain focused on expanding our retail footprint and firmly committed to open 40 to 45 EBOs across India with a strategic emphasis on Western and Southern India. To enhance customer convenience and reach, we have partnered with quick commerce platforms such as Blinkit, Swiggy and Zepto to enable quick deliveries within 30 minutes. Additionally, our strategic collaboration with Salesforce is helping us streamlining our operations, elevate our customer experience and building long-term brand loyalty through digital transformation. Further, we have expanded into overseas e-commerce platform for direct and indirect exports through zoom.com and styleshop.com, broadening its global presence. With this, we now open the floor for question-and-answer session. Thank you very much.

[Operator Instructions] The first question is from the line of Raman K.V. from Sequent Investments.

Can you hear me, sir?

Yes, yes. We can hear you.

Sir, initially, in the previous quarter, you gave a revenue guidance of 10% to 11% with 19% margin for FY '26. But still from what we hear that India is going to experience a good winter season. So is there -- how is the channel -- what's the channel inventory with respect to the winter wears? And are you planning to revise your guidance?

Yes. Thank you, Raman. So basically, initially, we said 10%, then we revised our guidance in the first quarter con call to 10% to 15%. And now as you rightly mentioned about the progress of winter, it is doing good as far as Northern and Central and Eastern India is concerned. And there is every possibility that we may revise our guidance in the third quarter once we have winter sales in our hand, but that we can only do in the third quarter con call. As of now, we stand at our guidance of 10% to 15%.

And the margin guidance, will it be 19%? Or are you planning to -- because my understanding is -- in the first quarter, we had a good margin expansion, if I'm comparing H1 of FY '26 with H1 of FY '27. So are we expecting margin expansion? And also, if you can point out what were the significant levers which helped you to achieve 17% margin in Q2 versus 13% margin? I just want to understand what were the measures taken by the management? Or is it because of the sales growth, the margin expansion happened?

No, no. Basically, there have been 2 reasons for the margin expansion. The first reason, as you rightly mentioned, is the sales growth. And the second reason is that the raw material price was stabilized, but we took the hike in our product prices. So that is also reflecting in the margins. And thirdly, we took some steps to reduce our discount sales and returns also. So all these factors contributing and increasing the margins. And we expect that over the last year, we should have at least 200 basis point margin expansion as far as this current year is concerned. But again, this guidance can be revised once we have third quarter sales in our hand, which is doing very well. So going forward, we are very optimistic as far as this quarter is progressing, and we hope that we should possibly revise our guidance after the third quarter.

The next question is from the line of Jaspreet Arora from Equentis PMS.

I'm just referring to Slide 5 of the presentation, so where the product mix is given between cotton, wool, textile and kids. So I wanted to understand what is the percentage product -- what percentage of our product portfolio would be what customers would purchase even in summers or, let's say, the non-winter period?

If I rightly understood your question, so you're asking about the summer and winter contribution. Am I right? .

Yes. Yes. Yes.

So in summer, there are broadly categories, which actually sells in winter also like shirts, trousers, denims, lowers. So some of the categories, they sell around the year. And there are a few categories that's in the winter wear, that is sweaters, jackets, winter track suits, windcheaters, even thermals. So these are the pure winter categories. So if I compare our summer and winter contribution, if our overall sales are concerned, see, I just give you broadly that at one point of time, if I talk about 15 years back, it was 75-25. Now if I talk 5 to 6 years back, it was 60-40. So this year, we should be touching -- on apparels, I'm talking about, it should be around 46 summer's and 54 winter. And we see that going ahead. In next 1 or 2 years, it should even out, 50-50, summer and winter contribution. So that's how we are progressing in this.

Okay. And this has been achieved through the categories like kids, textile, shoes. Is that how you have achieved this besides penetration in summer category as well?

When we talk about differentiation in summer and winter, we are not taking into account the footwear and textiles. We are talking only about the apparels.

Okay. Only apparels. So textile is 15%, and I believe footwear is hardly anything today. So if I exclude textile, so on the 85% portfolio, this is what you mentioned, the mix historically and today?

Yes. Even in textile also, the winter portion is coming down. It used to be 100%. Now it has come down to almost 75%, which is again coming down this year because we have launched bedsheets, towels and other categories also. So that summer contribution is also increasing in home textiles. But as far as apparels are concerned, which I have already given you the figures.

Got it. Got it. And you're saying so far, the sign is of a good winter. So in terms of -- and whatever be that, typically -- and please just educate us on that. Typically, the so-called inquiries and the order booking of winter would have already started big time from most of the retailers, distributors. So is there enough momentum there for you or the entire category to get excited to see a very big winter season this time around?

See, this is a supply time. The order booking normally happens 6 months in advance. And as of now, it's only supply time. So we are getting repeats. That shows that the secondary sale is happening, then only you can get the repeats. So that indicates us that the season is progressing well. And as far as trade show for summer, which happened almost 2 months back, we got a very strong demand in summer. It's a double-digit volume growth in summer as well. So that is giving us the confidence to revise our guidance going forward in the next quarter.

Okay. Okay. And for us, the sales of winter, how would it be split between 3Q and 4Q because some part of winter spills over to 4Q as well. So how is it typically split for us, the sales?

It is the end of season sales, which reflects in fourth quarter. Otherwise, mostly fresh sales happens in third quarter itself.

Okay. At least from our end. The retailer might sell in Jan, but from our end, it would go from -- within December only.

From our EBOs, we need to book some sales in January also. From MBOs and SIS, it is all reflected in the third quarter itself.

Understood. And just lastly, sir, the return on capital employed was about, I think, 15%. And I think one of the areas, I think, may be the working capital. So are there areas within working capital cycle that you think there is a possibility of cutting down because for a branded player like us, a 15% ROCE is very suboptimal.

Yes. So we are pretty sure that this year, there would be at least 10% reduction in the working capital days as we end this financial year. So we are working on the working capital as well as debtor days also. So you would find that both these areas have considerable improvement once we end this year and compared with the last financial year.

The next question is from the line of Viraj Parekh from Carnelian Asset Management.

Sir, just a few questions. So I think last year, we had Diwali and Durga Puja more towards Q3 and this year was more towards Q2. So have you assessed the impact of this quarter's numbers vis-a-vis Diwali and Durga Puja being in Q2 instead of Q3? And how is that impacting our 13% growth?

No, no, there is not any impact of shifting of any festivals because normally, the sales start in October itself when there is onset of the winter. But there may be a 2%, 3% difference of quarter-to-quarter variation because of these festivals and all these things. But otherwise, overall, if you see like 6 months basis, it remains same.

Right. Right. Sir, second question is more towards understanding how we are looking at winter. I mean, can you give me an idea? I think last year, we had reduction of our production levels just to be in line to maintain the channel inventory. So I would want to understand a few comments in terms of this year's winters were booking vis-a-vis last year, our production levels and inventory levels to meet any kind of secondary demand which may come after the primary dispatches of our trade show have done. So if you could help me understand a bit more on that front, it would be helpful.

Thanks for asking this question. So let me give you a very good news that our inventories are almost empty as far as our warehouses are concerned and secondary sales are happening. So we're pretty sure that the inventory at our EBOs, inventory at our LFS channel would be least as compared to many of the previous years. So that would ensure that we have lesser returns and lesser EOSS going forward in this financial year.

So can you help me understand that in case -- you are saying you may change the guidance revision to Q3? What I'm trying to understand our dispatches would have already happened. So there would be certain secondary sales, which may help us revise our guidance towards the end of Q3. So how are we planning for that in terms of -- would we have a better idea towards November, December? Or are those orders being placed as we speak?

See, guidance, why I'm saying is that it depends on the basically 2 factors. One is that if you have more fresh sales, then less of the goods goes into discount sales, so that improves your revenues. And second is that when the discount percentage is less, that again increases your revenues. And thirdly, when you have less returns because you have to minus the returns when it comes back, that again improves your revenue. So these 3 factors, I'm hopeful that it is basically in our favor in this quarter as compared to last financial year. That is why I said that let me see this quarter, once we end it, which looks very promising, we can revise our guidance upwards.

Understood. Sir, just last question. I got your point of fresh sale versus EOSS sale. What was the -- if you could share with us the year-on-year increase in winter show bookings last year versus this year?

Booking was there, but we made lesser goods because we had returns which were with us, which we refinished and dispatch it to the EBOs and other stores. So as far as our revenues are concerned, there is no change, but we cut down on the expenses of returns and we cut down on the expenses of fresh goods at least 2% to 3%, so which will reflect in our margins also.

Got it, sir. Got it. And any -- I mean, you've been experimenting with Cloak & Decker EBOs. And it's been a while since we opened the first one. So I just wanted to understand the response in that segment since that is a less premium segment than our flagship brand. So how is it doing? Are there more inquiries to open the franchise model of those stores?

Yes. So there have been inquiries. Already, we have around 17 stores of Cloak & Decker and another 8 are in pipeline. So we'll have 25 stores by the end of this financial year. And for next financial year, we intend to open another 25 to 30 stores. So all inquiries are coming from the previous franchisees only. So if the response is good, then only they are asking for opening another store as far as their regions are concerned. So I'm pretty sure that this is going to have -- in next 3 to 4 years, Cloak & Decker would also become a brand of around INR 100 crore, if I'm not very -- I would say that I don't want to sound very optimistic, but I should see that it should have around INR 100 crores of sale in next 3 years.

Footwear sales have surged quite a bit. I wanted to understand that since we started the last quarter, I think, you've given a number of 45% kind of a growth in the footwear business. I just want to understand, are we adding footwear option to the existing EBOs? Or are we opening new EBOs with the footwear section as well? I wanted to understand whether there's more organic like repeat customer buying from the same EBO or is driven from opening more EBOs with footwear as an option?

We are placing our footwear only in the EBOs which are more than 2,000 square feet. So there are, I think, around 40 locations we have placed our footwear. But mostly it is selling online. And also, we have started LFS with Reliance, where we are placing our footwear. So I'm pleased to share that we'll be doubling our sales as compared to last year. And last year, I think we did a sale of around INR 6 crores. So this year, we should be doing a sale of INR 12 crores to INR 13 crores in footwear itself.

And sir, the margins are similar to our overall business? Or is it a little bit better?

They're almost similar, 100 basis points here and there.

The next question is from the line of Diwakar Rana from Prudent Equity.

Sir, first question is on the renewable investment that you had planned. So any CapEx amount that you can give?

That already we have applied the tender. So as of now, we don't have any information that when this tender will open. But we have planned to invest around INR 50 crores in that basically as far as solar power is concerned. And that is having a project ROE of around 30%.

Sir, can you just explain what is the nature of this order? I mean, are we going for -- basically, what are we doing basically in this solar...

It's basically a tender which we have filled for Madhya Pradesh. So it's going to open, I think, in November end or December 1 week. If we get the tender, then we will basically put this plant and supply it to Madhya Pradesh Government -- Madhya Pradesh Electricity Board.

Okay. Basically, that will be EPC kind of a thing, right?

That would be supplying of power to them. And the project ROI, which we thought it should be around 30%.

Okay. Okay. And sir, one question on the GST reduction. So I believe the garment and apparel priced under INR 2,500 was previously taxed at around 12%. Now it has been reduced to 5%. So are you seeing any benefit of this?

Definitely, yes, because first of all, it will improve our margins. And secondly, most of the products will come under this INR 2,500 range, basically summer range. So that would help customers to purchase more. So it is very beneficial to us. But at the same time, the products which are above INR 2,500 have to pay additional duty of 6%, which will become a little expensive. But we think that basically, we are in the upper premium category. So INR 100 to INR 200 here and there doesn't make much difference to the customers. So overall, we would see a benefit of GST reduction as far as apparels are concerned.

Okay. Okay. So because in the last con call, I asked this question, and you said the winter is around INR 1,500. So what is the average? I mean, total that we sell in this December quarter, what will be the average price for all the products?

Winter is above INR 2,500 only. It's only the summer products, which will fall in this range. So as far as winters are concerned, because all our products are priced more than INR 2,500 only in winter category.

Okay. INR 2,500.

More than INR 2,500.

The next question is from the line of Manan Shah from Moneybee Investment Advisors.

I wanted to ask -- you mentioned that you've had very strong bookings for your upcoming summer season. So what has led to this sort of strong bookings for you? Have you changed the product or improvised it, which has led to this sort of strong bookings? And when you say you're looking at double-digit growth in terms of bookings, is this in mid-teens or it's upwards of 20%, that sort of the bookings growth that you are seeing in the summer wear?

I think the increase in summer booking is the hard work which we have been doing from last many years. So that is reflecting as far as retailers have understood that we are definitely improving ourselves in the summer we are doing. That is why the more booking has come. And why it is more important is that because it has come from the multi-brand outlets and SIS also. So who have the option of keeping multiple brands, but they are trusting our brand to place at their shelves. So that is giving us confidence that whatever we are making in summers is being liked and trusted by the customers itself. So what was the second question?

The growth you mentioned...

Yes, volume growth is mid-teens. And then there would be increase from the value price or like price hike also.

Understood. So you're saying largely it's being led by the MBOs, multi-brand outlets.