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

Ladies and gentlemen, good day, and welcome to the Monte Carlo Fashions Limited Q3 and 9M FY '24 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note this conference is being recorded. I would now like to hand over the conference over to Tushar from Ventura Securities Limited. Thank you, and over to you, sir.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to Monte Carlo Fashions Limited Q3 and 9 Months FY '24 Earnings Conference Call. The company is today represented by Mr. Dinesh Gogna, Director; Mr. Sandeep Jain, Executive Director; Mr. Rishabh Oswal, Executive Director; Mr. R.K. Sharma, Chief Financial Officer; Mr. Ankur Gauba, company secretary. I would now like to hand over the call to the Director of the company, Mr. Dinesh Gogna for his opening remarks. Thank you, and over to you, sir.

Mr. Sandeep Jain will give opening remarks, sir.

Good morning. This is Sandeep here. Thank you, everyone, for joining us for today's earnings call to discuss the quarterly performance for quarter 3 and 9 months of financial year '24. Let me start sharing the consolidated and the financial and the operational highlights. The company reported revenues of INR 504 crores during quarter 3 representing a degrowth of 2.9% year-on-year. Operational EBITDA for this quarter was INR 122 crores, which declined by 6.5% year-on-year, and the EBITDA margins were reported at 24.16%. Net profit stood at INR 77 crores for this quarter, which has declined by 10.4% year-on-year. Talking about the 9 months performance for -- the revenue from operations stood at INR 855 crores, which degrew by 2.9% year-on-year. Operational EBITDA was at INR 152 crores, witnessing a decline of 18% year-on-year with EBITDA margin reported at 17.75%. Net profit stood at INR 79 crores, a decline of 30% year-on-year. Now moving on to the operational performance for 9 months. Monte Carlo Fashion continues with its endeavor to build a leading branded apparel company with continued effort to increase its distribution network. The company has added 48 new EBOs, 22 under COCO model and 26 FOFO model in 9 months of financial '24. With this, the total number of EBOs have reached 398 across 20 states and 4 union territories. Currently, we have 1,900-plus MBOs, 390-plus EBOs and 1,300-plus national chain stores plus SIS. Our 9-month sales from online channel accounted for INR 71.48 crores, which grew by 12.5% year-on-year basis. Sales from our own website stood at INR 9.71 crores, representing a growth of 187% year-on-year for 9 months financial '24. Our Rock It brand delivered a strong performance, registering a revenue of INR 18 crore in 9 months as compared to INR 4.5 crores in the previous corresponding period. We would like to inform that after the careful consideration and the comprehensive review of our current business priorities, resources and market condition, we have evaluated that proceeding with the blanket project at Kathua for the subsidiary company, Monte Carlo Home Textiles is not in the best interest of our organization at this point of time. This is due to procedural delay in the land procurements. And also, there have been some new additions of blanket manufacturers in the market, which has led to the oversupply in the blanket segment, which has dented the margins of the blanket companies. The company will continue to do business in blankets with the old model that is by sourcing blankets from domestic and international suppliers, ensuring a diverse range of products that meet our customer preferences. And this doesn't have any material impact on the company's performance. With this, now we open the floor for the question-and-answer session. Thank you.

[Operator Instructions] The first question comes from Dhiral Shah from PhillipCapital.

So what is the result for the fall in the kids volume growth in Q3 as well as 9 month FY '24?

The kids volume growth?

Yes.

Yes. So the reason was there have been more inventory in the system at a retail level and also at the company level. So that is why the sales volume has fallen.

So now the inventory has been rationalized? Or is it still there, sir?

No. The good news is that now inventory has reduced at the retail level also and also at the company's various level because there have been a very good winter in last 1.5 months, so which helped us to clear the inventories at the store level also.

Okay. Sir, on the cotton side, particularly, are you facing any increase in competition with bigger guys like Trent becoming very aggressive in the market through Zudio and that is impacting our growth? Or is it due to the low consumer spending, which is there right now, which is not giving us the fresh growth in the cotton segment?

No, no, we are not impacting by Trent and Zudio because they are basically operating in the lower middle class segment. So we basically operate in the upper middle class segment, which is already -- we are competing with other brands, which is Zara, Benetton, Louis Philippe and Van Heusen. So our segment is entirely different from the Trent and Zudio segment.

Okay. And sir, are we seeing any revival in the demand scenario on ground now?

Yes. We see that the worst seems to be behind now as we have seen that there have been a pickup in the sales when the EOSS have started. And also, there have been increased footfall on our stores level also. And you will witness that the online sales have also grown. So all these things shown that definitely there have been some slowness in the past because of delayed winter also and because of inflation also. But I think these things have now already been countered. So we think there going ahead, we'll have -- going ahead, we should have a good quarter coming ahead for us.

So what kind of growth projection we are expecting now for FY '25, particularly and in terms of margins, sir, also?

See, I can't give you a guidance for next financial year because we normally give for next financial year in the first quarter of next year. So right now, I think this guidance already been given for this financial year was that we already talked about this in our last conference call that we'll have a flat year of revenues in this financial year, and we stand by their guidance.

Okay. And sir, is the discounting in the current season, which is in the month of January, which generally happens, EOSS, is same as last year?

No, it is more as compared to last year because discounts have been started early and also the discount percentage was higher as compared to last year. But only good thing which happened in this quarter was the winter was extreme, particularly in the Northern region and Eastern region. So that helped us to clear the inventory at the store level and also at our SIS and other channels.

So is the higher discounting will have any impact on the margin or margins will remain stable at around 18%, 20% band, which you were guiding earlier also?

So we have already taken the provision in this quarter. So the adequate provision has been taken for this.

Okay. And sir, what was the SSS growth overall in Q3 and 9 month FY '24?

What growth?

Sir, same-store sales growth?

No, it is a decline of 5% as compared to last financial year.

Okay. And are we seeing any improvement, sir?

This January, we have grown by around 3% like-to-like. So I think this trend will continue now.

The next question comes from Vipul Shah from RW Equity.

Congratulations, sir, for the decent set of results this quarter, considering that we had a delayed start to the winter, very commendable the numbers which have come in. Sir, I just have one question. Based on, sir, last year's -- based on last year's analysis where in the June quarter, we had taken provision for sales returns, has that been factored in while adequate provisions have been taken while coming out with the results for this quarter, sir?

Yes. Yes, we have taken adequate provision in this quarter itself. So going ahead, we should have, I think -- I don't think we have any other extra provision coming up in the next few quarters.

So what I hear is, sir, that there will not be any negative surprises coming in, say, the future quarters because of sales returns this quarter, if at all, they have been accounted for now?

Definitely, definitely.

The next question comes from [ Sriram R. ], an individual investor.

What I'm not able to understand is, I mean, we have degrown in the -- by 5% in SSG, while some of the value fashion players have actually grown in the SSSG. I mean -- so I'm unable to understand despite being a decent winter we have not clocked the growth in this quarter. So can you please elaborate on this?

Yes, thank you for asking this question, and I was anticipating this question. See, basically, when we compare ourselves with other players, the thing is that around 50% of the revenue comes from this quarter. So even if there is a slight delay in winter or if there is a slight disturbance in the Northern Eastern region for winter, we are more impacted than any other player in the industry because their contribution from winter is not that much. And as far as decline of this -- as far as like-for-like growth is concerned, it is only because of the delayed winter. We were declining around, I think, 5% in 9 months. But in January, as the winter started, which was delayed, so we covered up the 5% decline and now decline is contained at 2% only. Even in January month, we grew almost around 10% to 11% like-to-like as far as our retail performance are concerned. So definitely, yes, there have been some impact because of delayed winter and there have been a decline also in the like-to-like growth. But we think that in another 2 months, we should be at par with the same-store growth to 0 level. I won't say that we'll be growing much in this. And I am very confident that the decline which has been happened in 9 months would be covered up in this quarter itself.

You mean in the Jan to March quarter, right?

Yes.

And sir, what would be the normalized sale? Like if you just normalize for the delayed onset, what would be that? Can you give some ballpark number?

I can't say that the -- only thing I can share with you is as the MRP basically goes down to almost 25%, 26%, which used to be around 44% to 45%. So that 20% goods which used to be -- we could have sold in last quarter, we have to be selling in this quarter and also on the discounts. So that impacted the margins also, and that impacted the revenues also. Because when you sell INR 100 good at INR 90, that affects the revenue also. So in that case, revenue also fell because of discounting part and margin also hit because we have taken adequate provisioning in this quarter itself. So that gives us a surety that we'll have a good quarter coming ahead.

Okay. And sir, my second question is on the EBO expansion plan, like what is that you have for FY '25?

I think we stood by the guidance in last financial year, we gave up around 50 to 55 stores. So 48 stores have already been opened, and there are 4 to 5 stores in the pipeline. So we'll be fitting up in that guidance band only. And the next year also, we have the same guidance around 50 stores we'll be opening in the next financial year. So we are moving ahead with 1 store every week plan, which we followed last year also.

And the mix of -- in terms of geographical mix, where would those be?

Yes. Last year also I indicated in the conference call that 20% of the store would be opening in the southern and western region and balance would be opening in the Northern, Eastern and Central region. So the same phenomena continued this financial year also. Out of 48 stores, 10 stores we opened in West and South and 38 stores have been opened in Northern, Eastern and Central region. And the phenomenon will continue for the next also.

The next question comes from Viraj Parekh from Carnelian.

Just one question. Now that you have decided to not go ahead with the blanket project in J&K, have you identified any potential opportunities or at Board level are you evaluating some other states where you can invest the capital you've accumulated for that project?

No, I think the cancellation of the project was already we have gave the reason. But as of now, we do not have any other projects under discussion at the management level. So whenever -- if there is any project, which the company thinks that can give us the good value and the good value to our shareholder we definitely will bring into the notice of Stock Exchanges and all.

Understood. And sir, just last quarter, you announced that you have entered the shoe line as well. So just wanted to understand if you could elaborate on how that is panning out? And do you see any kind of potential investment in that trade for the company as a whole?

See, that was the decision we took because we have bigger stores, where I think we can add some more categories. So that is how this shoes category was added. And Mr. Rishabh can further explain into this the online foray of shoes as well.

Viraj, Rishabh this side. So as you mentioned, we launched our footwear last quarter itself. So we've centered to across 30, 35 EBOs as of now. We are seeing good traction. They are on discount right now. But I think we've sold around 3,000 odd -- INR 1 crore worth of footwear in the last quarter. But that is mostly just the -- we were -- we had just placed it in 30 stores. Now we are expanding it to more stores, putting proper modules, hiring people who are well versed in selling shoes. So going forward, we should see this category moving up. Also from this month, we've launched footwear on our online website as well. We've also tied up with Amazon, who are buying some quantity outright from us as a pilot run. So that gives us confidence that the product is okay, the pricing is acceptable in the market, and it should grow at a good pace.

Just to follow-up. How are we positioning our footwear in the market in what price range and with whom are we competing directly in terms of formal, casual, both?

So our range is more focused towards the formal category with more focused on leather footwear. We see less competition in this category as compared to casual shoes. So in terms of price point, you can compare us with Metro Shoes, Florsheim Shoes and brands like that.

[Operator Instructions] The next question comes from [ Parth M. ], an individual investor.

So my question was that we haven't opened any major stores in the South in this quarter, whereas our focus was majorly geared towards the South? Any reason for that?

No, no, we already opened stores in South in this quarter also. So total almost 10 stores have been opened in South and West in 9 months, which is almost 20% of the total stores opened Pan India. Even in this quarter, we have opened 1 store in South in Tamil Nadu region. And also in the last 2 quarters, we opened around 6 stores in South.

[Operator Instructions] The next question comes from [ Aditya Jhawar from J&J Capital ].

Sir, my question is regarding the exclusive brand outlets, what we are doing. Currently, we are doing 50% for current year, you're saying and the last year also, we have done a couple of both. And in the next couple of years also, we are targeting 50-50. But I want to understand when -- if we go on increasing our brand outlet, but the growth is not coming in, that is my first question? And the next question is on the marketing initiatives. Because currently, if you focus on this strategy, then marketing focus also should be higher in order to get -- attract growth from the competition, right? So because it is a very competitive market. When you are the building the exclusive brand outside, I think marketing plays a major role. So any thoughts on that in the growth part?

Yes. Thank you. So you're right that the growth is not visible like-to-like growth in this financial year. But last year, we grew at around 13% like-to-like. So this year, I have already stated the reason because of delayed winter. And also, as we have been impacted by the inflation and certain discretionary spending also. So we could not achieve the like-to-like growth. But still, we are confident that we'll not be degrowing as far as full year is concerned, I think by the time we end in the full financial year, we will have the 0 growth as compared to last financial year, but we'll not be declining it. And as far as marketing initiatives are concerned, I would ask Mr. Rishabh to...

So as far as marketing initiatives are concerned. So earlier, majority of our budget used to go towards newspaper advertisement or hoardings and other offline mode. What we have realized that these spaces have become very crowded and it is very difficult to stand out in these places. But however, we are not leaving the off-line space, and we've tied up with theaters, multiplex screens across the country. We've done an annual deal with them. We've also tied up with 8 airports in India, including Amritsar, Srinagar, Lucknow and other high footfall areas. So we are shifting our focus towards high eyeball areas where our target audience is coming up. And also, we have shifted around 20% of our budget towards digital promotion. We realize we get a better return on our investment when we promote online. So our major expenditure is happening on social media platforms like Facebook and Instagram. And if you see our website has also increased -- has also improved in terms of ranking when it comes -- so our major focus is towards performance marketing. And when it comes to off-line, we are trying to do annual deals, and we want to be present throughout the year in places where there is high footfall and high eyeballs.

Okay. That's helpful. So currently, our mix is more towards winter season, right? So I know we are taking initiatives to tie this into summer or to have nonvolatility in our revenues. So how do you see in the next 3 years it is shaping up?

I think if you see this year's third quarter revenues, and if we compare the revenues from last 3, 4 years, you would see that shift is happening. Third quarter revenue, I think if I talk around 10 years back, it was 80%, if I talk 3 years back, it was 61%. And this year, pleasantly, this year, it has gone below 50%. So third quarter revenue, which used to be contributing significantly to the company's revenue is going down every year. So this year, it has gone down below 50%. So I'm confident that as we move ahead in the next 2, 3 years, the revenue will be spread evenly in all the 4 quarters rather than sticking to the third quarter itself for 50% of the revenues.

And for marketing, how much we are spending, sir, absolute number? Because if we are -- see, what I'm trying to understand is if we don't spend right now, then our brands don't get visibility then the growth, what we are envisaging that can be slowed down. That is what my worry is.

Yes, we have indicated 3% of our ad spends on the revenues, and we are continuing with that.

Okay. So do you have...

And within that, that is sufficient as of now.

Okay. And you have loads of cash, sir. Are we thinking of buybacks? So last time also, we have asked this one, but yes, because since our plan also on Kashmir has got removed, so that's why.

Yes, definitely, we'll let the shareholder and the Stock Exchanges know if something happens on this front. Board has to decide about this.

The next question comes from [ Amit Kumar from Datamine Investments ].

Just 2 questions. And I'm sorry, I joined the call a little bit late. So if these are repeats, my apologies upfront. On the fourth quarter specifically, I think you already sort of talked about the fact that full year revenues fourth quarter, you will catch up a little bit. But I just wanted to get a sense, I mean this time North winter and obviously winter season is pretty important for the company. The Northern winters have shifted a little bit. So December was sort of reasonably okay, but January, February have been pretty strong winters in the North. So how are you sort of seeing the business sort of shape up for the fourth quarter?

See I think partly, you have answered my question as the winter was delayed and it happened mostly in January and February. So we have been able to sell most of our inventory, which was not sold in December to January and February. So that would cover up the sales, which we were planning in December itself. So that happened. Some of the sales have shifted to January quarter. And also, we have a strong summer sales going ahead in this quarter because of the trade show where we had a double-digit volume growth as far as our bookings were concerned. So that gives us the confidence that full year basis we will be flat in the revenues, and we'll be meeting our flat guidance, which we gave almost 6 months back that we'll be having the flat revenue in this financial year. And definitely, yes, there have been some impact on the margins because of higher discounting in this quarter.

I'm sorry, this trade show was for winter wear or for summer wear going into the summer season?

It was in September that we had a summer show, trade show for summer wear products where we had a double-digit growth in volumes as far as bookings were...

Okay. So that is going to filter through into the March quarter, you are saying?

That dispatch has started in this month itself, and this will be happening for February, March and April.

Understood, sir. Final point, see last year also, we had -- because of a bad winter, we had some inventory, and then we had to -- from MBO, we had to -- and large format stores also, we had to sort of get that inventory back, which we were hoping to sort of exit in this winter season. So has that inventory correction -- almost sort of sitting at the end of winter season now. So has that inventory correction sort of fully happened? And do we sort of start at least next year on a clean slate?

Yes. I am pleased to announce that, that inventory correction has taken place. Now we are at a minimum inventory at the store level. So we will not have any impact of inventory in the future sales and future quarters.

[Operator Instructions] The next question comes from [ Santosh Keshri from Keshri Finance ].

I just have 2 questions. One is the cash balance that we have in the books as of 31st December 2023. That's my first question. If you can just share the net cash balance that you have, net of debt?

INR 250 crores.

INR 250 crores.

INR 250 crores. Okay. Second, sir, I can see -- that's my second question. I can see that the inventory has been going up year-on-year and trade receivables also have been going up year-on-year. So is it that we can expect the same averages, same DSO and inventory days up sales every year at the current rate? Or there is a chance that it's going to come down?

If you look at the last year's inventory level and this year inventory level, it is almost same. And the debtor level is almost same. So there have not been any increase, but we think that going ahead in this quarter, as far as number of days of inventories are concerned and as well as number of days with debtor are concerned, both will come down.

Okay. And the reason is that late winter that the earlier participant talked...

Yes, the reason was because of higher stocks because of delayed winters. And I think those things have been taken care of, particularly in this quarter as lot of sales has happened at the retail level also at our SIS, at our channel partners like at our LFS stores also, EBOs also. So that inventory has now come down.

So sir, with that, can we expect the borrowing also to go down in the current quarter with the inventory cash being freed up for inventory and trade receivables?

Yes. The borrowing would be less as compared to last financial year, but there can be an increase because of, the growth is coming up in the next financial year. So that will add up our inventory. Of course, we have to plan more for more sales.

And sir, one last question. Is there any plan for buyback or rewarding the shareholders more because we can see that the profit is holding up quite well?

Yes, these things are under discussion at the management level, and we'll let the shareholders and the Stock Exchanges know in the appropriate time.

So the next question comes from [ Aditya Jhawar from J&J Capital ].

Sir, my question is -- so last couple of years, we are opening 50-50. And maybe next year, how much time it takes to get the maturity level in the EBO? That is my first question. And FY '25, I think it will take time, FY '26, should we see a good growth then?

Repeat your first question, please?

How much time it takes to scale the EBOs, whatever we are setting up in the last years, suppose 100 or 200?

If I actually understood your question, you want that in how many years the EBO get stabilized?

Yes. Whatever the EBOs, we are opening, but that might be continuing less, right? So I'm asking about the maturity when this will start showing in the numbers?

No, no, the day the EBOs open, the sales start and it starts contributing to the revenues from day 1.

It starts, but we have some visibility of revenue, right, this EBOs would get you this much number. Sir I'm asking from the day 1 or the first year of operation, it reached to a...

No, no, no, day 1, and we target normally INR 13,000 to INR 14,000 per square feet per annum revenues from EBOs, whatever we opened. So that is a benchmark actually we have considered. So if I open a 1,000 square feet EBO, just for example, so we do a sale of around INR 1.2 crores in a year's time, per 1,000 square feet stores, yes.

Okay. So basically, whatever stores we are opening, that should -- we see up in the next year, maybe what are the growth, it should actually show because cumulatively, we have added?

Yes. The absolute return growth can be seen in the next year.

Yes. And also because I already indicated that we had actually a 5% to 6% decline of like-to-like growth. That is why actually it is not adding up to the revenues, but I think that will be taken care of in this quarter. So we would see growth coming up in the next year itself.

The next follow-up question comes from Viraj Parekh from Carnelian.

My question has been answered.

[Operator Instructions] The next question comes from Ranjana Chabbria from ITI Capital.

I just have one quick question. Is there any plans for any inorganic opportunities or expansion plans that you can acquire a brand?

Not as of now.

The next follow-up question comes from Viraj Parekh from Carnelian.

Sir just one question. I mean this year, we were seeing the inventory getting rationalized in the channel. So we had cut down on our production I assume. So for the next year, can we see some kind of operating leverage coming in as production ramps up like we are at 17%, 18% kind of margin this year. Do we see that going back to 20%, 25% kind of margins in the coming year as we come back to the normal level of production as we generally do?

Yes, the margins can improve going forward because of 2 things. One is to increase in the sales. So definitely some overheads will come down. And secondly, raw materials are stable. So we think that going ahead, there can be some improvement in the margins.

Also, Viraj, the old inventories does not have any impact on our production capabilities since we only produce a small fraction of whatever we sell in-house. So whatever reduction is done in the -- production is done in the outsourcing orders, not in the in-house production facilities.

Understood. Just to confirm, mainly the woolen wear is manufactured in-house and the cotton wear and home textile and the kid segment is mainly outsourced, right?

Yes. Woolen is 100% in house. And -- but if you see the woolen's volumes have not reduced from the last year, in fact, it has shown a small growth, 10% growth. So the woolen production is running at a good capacity, and we don't see any reduction in margins due to less products being produced in our factory.

Now I hand over the call to the management for the closing remarks.

Once again, thank you very much for all the participants. Still if you have any queries, which is left unanswered, please you can write to our Valorem Advisors, so they can write back to us. Thank you very much.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura Securities, that concludes this conference. Thank you for joining us, and you may disconnect your lines now.