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

Ladies and gentlemen, good day, and welcome to the Monte Carlo Fashions Limited Earnings Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] I now hand the conference over to Mr. Sunny Bhadra from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thank you, Iqra. Good morning, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Rishabh Oswal, Executive Director; Mr. Sandeep Jain, Executive 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.

A very good morning to everyone, and thank you all for joining us for today's earnings call to discuss the performance for third quarter and 9 months ended of financial year '26. Let me start by sharing the financial highlights. For the third quarter under review, the company reported revenue of INR 608 crores, reflecting a year-on-year growth of 11% and EBITDA for the quarter stood at INR 166 crores with EBITDA margin at 27.24%, marking a 7% year on expansion and net profit increased by 11% to INR 107 crores. Now coming to the financial performance for the first 9 months. The revenue from operations stood at INR 996 crores, which has increased by 11%. EBITDA was INR 201 crores, witnessing a growth of 11%, and EBITDA margin reported at 20.3%. The company has reported a profit after tax of INR 107 crores, which has increased 17% year-on-year. Turning to the operational performance for period, we saw a strong rebound in the sales across most categories. Our brand Rock it and Cloak & Decker brands delivered yet another quarter of consistent performance. The Home Textile segment also maintained its robust growth trajectory, supported by healthy demand across all categories. Further, footwear sales rushed to more than twice the level of 9 months ended financial year '25 and the growth momentum is expected to continue in the coming quarters. Online sales continued to show strong momentum through our own website and external portals, reflecting the growing customer preferences for our digital channels. We remain strongly focused on expanding our retail footprint and are firmly committed to open 40 to 45 EBOs across India with a strategic emphasis on the Western and Southern region. During the quarter, our retail presence was further strengthened with addition of 5 new EBOs under Cloak & Decker, taking the total count to 22 stores. Plans are underway to reach 25 to 30 EBOs of Cloak & Decker by the year-end. To enhance customer convenience and reach, we have partnered with quick commerce platforms such as BlinkIt, Swiggy, Zepto to enable express deliveries within 30 minutes. Additionally, our strategic collaboration with Salesforce is helping us streamlining operations, elevate customer experience and build long-term brand loyalty through our digital transformation. Further, we have expanded into overseas e-commerce platforms for direct and indirect export through zoom.com and stylishshop.com, broadening its global presence. As per our earlier growth guidance of 10% to 15%, we are hopeful of ending the year at the higher end of the guidance and remain optimistic about achieving multiyear growth going forward. With this, now we open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Diwakar Rana from Prudent Equity.

My first question is how much expense have you booked in the view of this labor law change?

How much expense we have booked in?

In the view of this labor law change.

Labor law change.

INR 30 lakhs only towards gratuity.

It's around INR 30 lakhs towards gratuity.

Okay, okay. Only INR 30 lakhs. So the employee benefit has increased by over INR 7 crores.

Pardon? It's not because of labor cost. Additional expense -- On labor cost expense was only INR 30 lakhs, and that is only because of gratuity. Nothing else.

Okay. Okay. Okay. And the remaining part, around INR 6 crores?

That is employee benefit, additional increments and all. Not because of labor. This is an annual increase as far as salaries and wages are concerned. But the extra expense, which we have to book was only INR 30 lakhs.

Okay, okay. And also, can you throw some light on the increase in other expense. Is there any one-off there?

They normal expense. As far as percentage is concerned, if you compare it, it is almost normal. So there is no additional item in this.

In terms of percentage, it is similar.

Percentage-wise, it is similar, if you see.

The next question is from the line of Jigar Nathwani, an Individual Investor.

My question number one is your inventory has grown faster than sales recently and ROE is around 20% -- 10%, sorry, ROE, return on equity is 10%. So what concrete steps are you taking to reduce inventory days and improve the return on equity over next 12 to 18 months? And is there any medium-term ROE target the Board is working towards?

See, inventory has increased only because sales have increased. And also we are looking forward for a very strong quarter coming forward. That is why also the inventory has gone up. And as we've guided, we'll be ending at the top end of our guidance, that is around 15%. So that is why there has been a little increase in the inventory. And as far as ROE is concerned, I think if you have to see the cash adjusted equity, so that is much higher because we have around INR 300 crores of cash, which is lying with us and cash adjusted ROE is around 15%.

Okay. And sir, my second question is for the 35-megawatt PM KUSUM Solar project. Can you share expected CapEx, tariff structure, funding mix and the annual PAT contribution we should expect once operational?

I would ask Rishabh-ji to answer on this.

Yes. So I think the total tender is for around 49 megawatts. We can take an average costing of around INR 3 crores to INR 3.2 crores per megawatt. And looking at the recent increase in prices of the metals like silver and copper, it has impacted the cost of 1 megawatt by around INR 15 lakhs to INR 20 lakhs per se. And -- but otherwise, what was the second part of your question?

Annual PAT contribution we should expect once the plant is operational.

We will share the exact numbers with you. We don't have them.

But approximate the project IRR is around 18%.

18% IRR.

IRR is 18%. So exact PAT number is yet to be quantified, but we are anticipating an IRR of 18% as per the latest cost data we have available with us. Because already the PPA, we will be signing in a few months, maybe by next month, we can sign it. So that price and the cost, which is running right now gives us around 18% of IRR. And as far as the funding mix is concerned, it will be around 70-30, 70% will be debt and 30% will be equity -- equity and cost equity.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand why are we getting into solar EPC when we are already an apparel manufacturer. Sir, this is very -- sir, no business segment, sir, it's nothing similar. So I'm trying to understand the rationale behind it. And sir, the sub-question would be you said that the cost of per megawatt was INR 3 crores to INR 3.25 crores, and that has increased by INR 15 lakh to INR 20 lakh per megawatt. Sir, is the -- so the 18% IRR that we have mentioned, is it on a -- is it on the higher end because of these rising commodity prices?

Yes. So 18% IRR we've calculated is after the increase in prices. So 18% is the minimum IRR that we can expect. And I just want to clarify, we are not getting into EPC of solar. We are just investing the amount in a solar project in a PPA. We are not getting involved in the EPC procurement construction part of the process. This is a purely financial investment decision taken on companies behalf.

See, we have seen that our return on investment is basically around 9% to 10%. So with this, it will go to 18% in this case. So it's more of a financial decision than of going into EPC or anything.

It's not a business decision. We're not getting into the business of EPC of solar. Not in what...

And it's a separate subsidiary also. It's not in the same company.

Got it. And sir, what is -- at what rate are we signing the PPA at?

Average rate is 2.79.

Got it. And sir, I wanted to understand, sir, even with such a strong winter season this year, sir, our sales have only grown by 10%. So why is that, sir, are we losing market share? Because the winter has been very strong in North India and where we have a very strong presence. So I'm just trying to understand why are we not able to grow faster than the 10% to 12% in Q3, especially in Q3?

It's not about the faster growth or slower growth. We have given the guidance of 10% to 15%. Accordingly, we have manufactured the merchandise, seeing that this much we can sell. And we are already -- we have said that we will be going ahead in the top end of this guidance, maybe around 15%, we will end this year. So that is as per the guidance and as per the production we have done for this winter also. And the sell-through has been better as compared to last winter. And we are very hopeful of going into next year with more focus on the -- like revenues. So we're forecasting approximately 15% to 20% growth for the next financial year also because we are lying at a very low end of inventory cycle at our warehouses and also at our retail stores and our channel partners. Hope I answered your question.

The next question is from the line of Kapil Jagasia from Carnelian Asset Management.

Sir, my question is regarding the price hikes, which you had indicated that you have taken during this year. So despite that, I can see the difference between volume and value growth, the value growth being much lesser than the volume growth across all product segments. So can you indicate like why is this? Is this impact of USS or interior product mix? Can you highlight on this?

There has been impact of USS, but that is already taken into the price. So there is no impact on the margins as far as margins are concerned. But yes, USS is increasing every year, and that is why we have to increase our price also. So that is why the margins are not impacted, but there has been a certain reduction in the value and the volume mix is more.

Okay. So the gap between the volume and value growth will continue in the next year also? Like how is your sense on this being on the USS increase in USS.

I think more or less, it will remain stable at this level.

Okay. And sir, how is your booking for the next quarter, Q4, like the winter product is selling well or the summer has picked up. Like can you give some sense on it?

See, as I already mentioned, we had a very strong trade show in summer, which dispatches will start in this month and already we have started. So we are seeing a very fourth strong -- very strong quarter, the fourth quarter, which is coming now as compared to last fourth quarter of last financial year. And because the retail inventory is very low at our channel partners also and at our warehouse also, the sales will have been much better. So we anticipate going forward, we might grow at 15% to 20% for next financial year. And we see a strong trade flow coming in winter for -- that would be starting in 21st March of this financial year.

But context to this, you have indicated that there has been more participation in the USS. So this year's USS participation was earlier for us or how? Can you give some sense in that also?

It was same as last year. There was no change. It's almost same.

The next question is from the line of Amar [ Aher ] from [ Radan ] Capital.

Sir, I wanted to ask you that what are the total number of stores or distribution channels that we added right now? And how many of them will come in Q4? And F 11? And also what is the share of like India and the international sales?

Just wait for a moment. It's there in the presentation. So total store we have is 490 as of now. And we expect another 4 to 5 showrooms, I think we will open in next 2 months, February and March. It may be more also. I need to check it again. And the international presence is very, very less. I think mostly we are 99% we are a domestic market only. We have just started online sales in Dubai and some other areas. So -- but mostly 99% business comes from the domestic market only.

Okay. So 4 to 5 stores in the next 2 months and for FY '27?

Again, we are maintaining the same guidance of 40 to 45 stores.

40 to 45 stores for the full year FY '27, right?

Yes.

Okay. And any margin or revenue guidance for FY '27, sir?

I've already indicated that we would like to grow around 15% to 20% over this year's base. This year, we'll be ending at 15%. So on this base, we are anticipating a growth of 15% to 20% for next financial year.

Okay. Okay, sir. And do you -- can you help me with the retail and e-commerce mix of your sales?

E-commerce is around 12% in 9 months. Retail contributes almost 40% of this 9-month period.

E-com is 12% and retail is 40%, right?

E-commerce is 12% of the total business, e-commerce. And 40% contribution by retail stores.

[Operator Instructions] The next question is from the line of Subrata from Mount Intra.

Yes. Sir, 3, 4 things to understand. One is like whatever you are saying like because there is a low -- despite a very strong winter, because we have like our production was planned accordingly, and that's why we have registered a 10% growth. So in this situation, what kind of difference, at least you can give some idea like what is the difference between primary and secondary sales of our products, which has reduced our inventory. This is number one. Second, when you are projecting that we will grow in next -- like throughout the year at a 15% rate, that means we are supposed to do a very strong Q4. And number two, generally, what happened during the weak season, like there are a lot of inventory return and that depressed our margin to only 3%, for example, in last year. So are we expecting significant higher margin in Q4? So these are the 2 main aspects first, and then I will have some follow-up questions.

As I've understood your question clearly, see, this year, as I already reiterated that whatever we have planned, we normally plan 6 to 8 months in advance. So that inventory was planned and the growth was anticipated was 10% to 15%. But we are still hopeful of ending at 15% once we have the final year -- once we have the fourth quarter ended in this financial year. And as far as quarter 4 margins are concerned, we anticipate that our quarter 4 should be better as compared to our last quarter 4 of last financial year. And volume growth and value growth both would be there because we have a very -- we had a very strong retail trade show for summers. So that dispatches are happening in Jan, Feb and March. So we see that we end this year at 15% as compared to last financial year as far as overall growth is concerned. Now the reason why I'm saying 15% to 20% growth for next financial year is very, very simple is that because our sell-through at retail level is more as compared to last year's sell-through. So that gives us the confidence that we would be having a lower inventory at our channel partners also, at our retail partners also. So that is giving us the confidence that in forthcoming trade show, which is going to happen at -- in around last week of March, we should have more orders, and we anticipate a growth of 15% to 20% going forward next financial year.

Sir, one clarification, sir. Like this -- just only on the margin side to understand a little bit more, like December quarter, we do 28% margin, for example, sir, both FY '24 as well as this year, 27%, 28%. Whereas when we go to March quarter, every year, we do a negative operating margin or a very slim 2%, 3% margin. So what I'm trying to understand is the primary reason for this is like whenever there is an inventory return from the store level, that depress our margin or we have to sell at a much discounted price to clear the inventory. If we anticipate that this year, there is a very low inventory, then we will not come out with a discount sale. So can you give some idea of how strong that margin can be vis-a-vis negative or a 3% margin. Let's say, we have done operating profit of -- in March '24, our operating profit was minus INR 10 crores. In March '25, our operating profit was only INR 6 crores vis-a-vis like in March '26, what kind of operating margin, absolute number or in terms of percentage, some guidance. Because even if we grow throughout the year at 25% -- 15%, then we need to clock anywhere INR 270 crores to INR 280 crores of sales, which is almost 30% above the March 20 March '25, plus the margin upside should come. So any idea, sir, at least some clarity.

I think partly you answered my question. So yes, definitely, the sales figure which you are referring is we should need to have that kind of sales figure to achieve 15% growth at the year-end. And secondly, we have rightly mentioned, so as the sell-through is more, so there will be less returns as compared to last financial year, that will add into profitability. And also that will add into our margins also. So I'm hopeful that as compared to last financial year, fourth quarter, this quarter, we should have better margin, better revenues and overall growth would be around 15% of this financial year as compared to last financial year. And as far as EBITDA is concerned, you were talking about the operating margin. Last year, we ended at around 19%. So we indicated in second and third con call also that we should be around 100 to 200 basis points plus as compared to last year's margins and already growth I indicated. I think I have answered all the 3 questions.

Okay. Sir, last, a small clarity. Generally, sir, what kind of margin depression we anticipate in Q4 because of inventory return?

See, I can't say as of now, but I'm giving you full year idea.

I am not talking about future. Sir, I'm not talking about futuristic. Only I'm talking about last 1 or 2 years, your experience, what kind of margin compression you experienced in Q4 because of inventory return? That's first. And what kind of margin compression?

We have not quantified it, sir, as of now, if you want, we can quantify it and send it to you, but the general logic is this.

The margin compression is because of returns, which we get.

Yes, I know it, sir. I'm talking about only from a historical perspective, what kind of margin compression we experienced used to in Q4 because of inventory return?

Sir, we will quantify it and send it to you over e-mail. We don't have that number with us right now.

And for basic understanding, please refer to our overall guidance, which is 15% and better margin as compared to last year, 100 to 100 basis points plus for full year. Please refer to us as a company for a full year basis because we don't have a debt of quarterly guidance and quarterly margins.

Okay. So last year, we have done 17% overall. This year, we expect it to be 18% plus overall throughout the year?

17% was without other income. And with other income, it was 19%. So we expect minimum of 100 to 150 basis points plus as compared to last financial year. And the revenue growth, again, I would say that upper end of our guidance, which is around 15%.

The next question is from the line of Madhur Rathi from Counter Cyclical Investment.

Sir, what will be the cost of debt for the solar EPC project that we are -- that we will be making investments in?

It will be at a very competitive rate, around 7%.

7.5%.

Got it. And sir, we are expecting a 30% revenue growth for Q4 on a Y-o-Y basis for us to achieve the 15% revenue growth for the whole year. Sir, can you help us understand why? Because our strongest quarter has been the Q3 and the winter season. So what is changing in the business that we are expecting such a strong growth for Q4?

See, we have indicated in the last financial call also that our summer business is now growing faster than the winter wear business. And that is why the contribution from summer wear altogether has reached to almost 46% as compared to 54% of winter. And every year, this dynamic is changing. So that is why we expect a more stronger quarter going forward, particularly this quarter, which is we are basically fourth quarter. So we see that there has to be a very good growth, then only we can reach 15%. As already indicated that we had a very strong trade show for summer. So summer growth number -- summer is growing faster than the winter wear segment.

Got it. Sir, what was the inventory level as of Q3 FY '25 then?

It is -- we can't say right now because once we have the returns with us, which we see that it should be lesser than last year, then only we can see the inventory level of fourth quarter. But if you want inventory of third quarter, that I can let you know the total inventory of the company.

Got it. Sir, what was the sales return for...

The total inventory as of now is 529 as against 503.

Okay, got it. And sir, what was the sales return for last year?

Just hold for a moment. I can let you know in percentage terms. 13%. It was 13%.

13% for the whole year or only for the Q4?

9 months. It was 13%.

Okay. And sir, what was the figure for this year?

This year, it is 17% as of now.

But we make adequate provision for each quarter for the expected returns as well as expected discounts.