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

Ladies and gentlemen, good day, and welcome to the Monte Carlo Fashions Limited Q1 FY '27 Earnings Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. 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, Anushka. 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.

Very good morning to everyone, and thank you all for joining us for today's earnings call to discuss the performance for quarter ended 30th June 2026. Let me start by sharing the financial highlights and then the operational highlights. For the first quarter under review, the company reported revenue from operations INR 149 crores, registered a growth of 8% year-on-year. The first quarter remained a lean period, resulting in EBITDA loss of INR 13 crores and a net loss of INR 23 crores. The quarterly performance was primarily affected by higher product returns during this period, the impact of which will be offset in the subsequent quarters. Coming to the operational performance, we witnessed broad-based growth across our key product categories. Cotton volumes grew by 23% year-on-year, home textile by 42% year-on-year, kids wear by 5% year-on-year, reflecting strong product acceptance. Our Rock It brand continued its growth trajectory, while the home textile segment maintained healthy momentum. Footwear sales also increased 38% Y-o-Y, and we remain optimistic about the continued growth of these emerging categories. Our retail expansion strategy remains on track with the target of opening 40 to 45 exclusive brand outlets during the year with a strategic focus on western and southern region. Our digital channel continued to gain traction with online sales growing by 15% Y-o-Y. We further strengthened our online presence through partnership with leading quick commerce platforms like Blinkit, Swiggy, Zepto, enabling deliveries within 30 minutes. Additionally, our collaboration with Salesforce is helping us streamlining our operations, enhancing our customer experience and strengthening long-term customer loyalty through digital transformation initiatives. We also successfully organized our pre-winter and winter trade show in February and March 2026, which received an encouraging participation and supported order booking for the upcoming season. We remain confident in our long-term growth strategy with strong traction across all our product portfolios, expanding retail and digital reach and encouraging customer response to our upcoming seasonal collection. We believe we are well positioned to strengthen our market presence and deliver sustainable value for our stakeholders. With this, we now open the session for question-and-answer. Thank you very much.

[Operator Instructions] We take the first question from the line of Sucrit D. Patil from Eyesight Fintrade Pvt. Ltd.

Two questions. The first question to Mr. Rishabh is, beyond the regular outlook, I just want to understand the top 2 to 3 execution priorities you're focusing on in the next few quarters. And alongside that, what do you see as the biggest risk in consumer demand shifts, fashion cycles or competitive pressures? And how are you preparing to manage them by strengthening Monte Carlo's position in the branded apparel space? That's my first question. I'll ask the second question after this.

This is Sandeep Jain. And I would also ask Rishabh also to support my answers. So the first question, as I clearly understood, our strategy for coming 2 quarters, see, if you have seen this quarter, the returns have been more because we basically plan to have better planning of our returns to dispatch it in times. That is why we have recalled it as in the June quarter because last year, it was divided into first quarter and second quarter. So to plan better sales in the coming year at our factory outlets also and also to better manage the return inventory, the returns have been more in this quarter. And we believe that we are in well position to go for a strong year this year also, and we anticipate a double-digit growth going forward. Yes, there have been some tension of geopolitical issues have been there. There have been inflation issues. There have been issues of freight and input cost is going up. But despite all that, we are well positioned to achieve our growth. And I'd also ask Mr. Rishabh to support into this.

No, as Mr. Sandeepji rightly said, so the increased returns that we see in our numbers in the first quarter is we've improved our operational performance, and we've recalled and processed the returns on time this time. So the total number of returns will average out in the second quarter. Secondly, we are focusing a lot on our digital channels as well, focusing on primarily our own website, along with quick commerce. And our focus has always been on outright sales, which ensures that we get the least amount of returns. Other than this, there's a lot of effort being put in, in terms of stock planning that we send to our stores. Earlier, we were purely dependent on the order that we received from our retailers. However, now each of the retailer's order is scrutinized by a back-end team that we've created using multiple software so that we can get better at our sell-through and discounting.

My second question is to Mr. Sharma. From a financial point of view, I just want to understand, do you see any key risk or challenges in the coming quarters? And what specific measures are being taken to manage margins, steady the cash flow and maintain the balance sheet strength, especially in areas like raw material cost volatility, receivables and compliances?

Yes. The main challenge in our company is only -- there are only 2 factors: discounts and returns. If we can maintain the returns as per our plan, which is approximately 12% to 13%, so we will definitely improve our margins. As far as material cost increase is concerned, it is actually -- we already -- in advance at the time of booking, we prebook all the raw materials and all the other accessories. So there is hardly any impact to that extent for that. And as far as the working capital position is concerned, we are definitely monitoring quite tightly all our debtors outstanding collections, and we hope that it will be improved further in future also.

I would just like to add that because of slightly rise in the input packing cost, input prices, so there may be 100 basis point difference as far as last year margins are concerned in this financial year.

We take the next question from the line of Gunit Singh from Counter Cyclical PMS.

I want to understand our cotton sales volumes have gone up by 24% and home textiles by 40%, but our revenues have not increased by even 10% this quarter. So can you help me understand in detail what exactly happened? And when you say sales returns, so -- which are higher this quarter, so what was the number of sales returns in Q1 FY '26? And will we not see any sales returns in the next quarter? Or I mean, can you help elaborate?

That's a good question. Definitely, if you have seen that the volume in cotton segment has grown almost 20%, as you rightly spoken about it and even home textile also grow. So only reason for less sales is because we have got more returns. Normally, it is spread in first quarter and second quarter. But in this quarter, we got almost INR 50 crores of more return as compared to last financial year. And that actually basically hurt the revenues part. So in second quarter and in third quarter, you would see that we would nullify this return as returns would be less as compared to last year, and we will have the revenue growth in second quarter and third quarter.

Why were the returns higher? Were these winter products? And how are the returns treated whenever we have the return, is it subtracted from the revenues?

No, no. What happens is that -- so the winter returns basically comes -- some portion comes in March and the balance comes in first quarter and second quarter. So whenever we bill the material, we bill the material at WSP, but whenever we bring it back, we bring it at a cost. So that is why we have to incur loss also. So now it is -- this inventory is now positioned at a cost in our balance sheet. So when we will bill it again, again, the profit will be booked.

Got it. And what was the reason for higher returns this quarter? And I mean, will we not see returns in the next quarter? How are you confident about it?

Yes. No, you will see returns in the second quarter also. But when you combine the first quarter returns and the second quarter returns, the percentage return to the total revenue will even out. So in this quarter, you will see INR 50 crores of extra return has been processed. Earlier, our capacity to invert returns were limited. We've increased that capacity. That is why we've been able to pull more returns in the first quarter. This has already been refinished, already being sent to new distribution channels like our online channel, brand factories and factory outlets. This will help us realize in achieving better realization of these products. The overall return is almost the same as per last year in percentage terms.

Just to add what Rishabh has said, see, the main reason for is that we wanted to refinish it as soon as we can so that we can dispatch it in time, because normally what happens is that then there is a lot of pressure when the returns comes late because the season starts in September, October. So we wanted to refinish it in time so that we can dispatch it on time.

Got it. And you mentioned that the processing of returns capacity has increased. So what exactly did you do? And when did it increase?

We've just added more warehouse space and added more manpower. It is a very manual process that is involved during refinishing. So that is all that we've done.

So there was a space constraint earlier. So that happened now we got the space. So that is why the refinishing capacity also have increased.

Got it. By processing, you basically mean whatever is returned, you can process it quickly and then send it back to the store. That's what you mean, right?

Yes. So just to give an example that if earlier, we were doing 5,000 pieces per day, now we can do 10,000 pieces per day. So the refinishing capacity has been doubled. So that is helping us even to take return earlier so that we can finish it well on time and dispatch it on time.

So just to give you a broad figure of the total returns that we were supposed to get in first and second quarter. In last year, we had processed around 50% of total return in the first quarter, 50% in the second quarter. This year, we processed almost 65% of the total return that we are supposed to get. So next quarter, we will only get 35% of total returns. So if that gives a little more clarity.

But returns, when you say returns, if a customer wants to come and return their products, I mean, you cannot refuse them, right? So it's not our capacity to process it. It's basically customers coming and returning, right?

These are not customer returns. You are only referring to the online sales returns that happened. These are institutional returns that comes back to us from our retailers. So these are B2B returns. And we can definitely stop our retailers from sending back goods to us if it is higher than what we've agreed. This is not B2C returns. This is B2B returns. Yes, and we have full control over how much we want to pick up from our retailers.

Got it. And when you talk about sales returns, can you also elaborate, say, out of INR 50 crores, how much is B2C returns in the customer?

100% is B2B returns. These are all B2B.

This is complete B2B returns.

Got it. Sir, my second question would be regarding the inflation in yarn prices, inflation in cotton prices. So have we taken any price hikes? And you mentioned that our margin will be impacted 100 basis points. So I did not exactly get what you were saying that. So we -- our margin will be 100 basis points lower this year because of this?

So I'll break it into 2 parts. So one is the winter trade show, which has happened 4 months back, as Rishabh has rightly said. At that time, the trade show was good, and we've taken a hike of around 6% to 7%, depending upon the raw material price increase. And now when we come to the summers, again, we are having a trade show next year. So we are taking another hike of approximately around 8% to 10%, depending upon the cotton price increase. So that is one area. But second area is that the input cost, the other cost pressure because of inflation, the freight, those things have also gone up. And it's not that we can completely pass on each and every hike because there are some material left, which we procure a little later also. So I assume that most of the things will be covered. But again, there may be a slight difference of around 100 basis points as compared to last year's margins if we go into this financial year.

Got it. We saw this hit in Q1 as well?

Pardon?

We saw this 100 basis point hit in Q1 as well?

When I talk about hit, it is a full financial year. I'm not talking about a particular quarter. So whenever we give guidance, we give guidance for full financial year. This [indiscernible] guidance.

Got it. What was the same-store sales growth in Q1?

It was around 7%.

7%. And for FY '27, can you give a breakdown of, I mean, what kind of SSSG are we looking at? And we are adding 40 new stores. So would you like to give some guidance for FY '27 in terms of growth and EBITDA margins?

So already, we have indicated that we'll be growing double-digit growth. Exact double-digit growth, I cannot quantify how much -- but it will be low double-digit. Yes, there will be a slightly reduction in the margin, 100 basis points, we assume. And SSG, as far as our in-house targets are concerned, we are targeting 10% of SSG for this financial year as well. We grew 11% last year also. So on above that, we'll be growing 10% SSG in this financial year also and 40 to 45 stores, which we indicated earlier in our presentation also, we'll continue to open those stores in this financial year as well.

Got it. And in terms of EBITDA margins, I mean, are we looking at -- see, last year, we did about 18%, if I'm not wrong. Yes. So are we looking at about, say, 17% or lower than that, closer to 15%?

First of all, I cannot give you exact numbers, but we assume that seeing the inflation, seeing the input cost, which is going up, it can be same as last year's margin, but we are safely saying that it can be less than 100 basis points going forward because we don't want to commit anything which we cannot achieve. But again, if the upcoming quarter is very good as we have seen that the geopolitical tensions have eased and also the prices have gone down for oil also and input cost is coming down. So there may be a chance that we can have the same margin or upward revision of margins also, it all depends on the coming 3 to 4 months. We can give you update guidance in the second quarter con call.

We take the next question from the line of [ Amit Kumar ] from [ Determined Investments ].

Actually, I picked up the data from your presentation on the sales returns numbers. I just wanted to sort of get a sense that given that you already had an opening provision of sales return of about INR 180 crores and you had an actual of about INR 130 crores. So why is it that this entire number is getting booked in your P&L? Shouldn't this be adjusted against the provisions which you already have in the balance sheet?

This is R. K. Sharma. Actually, the same way what you are saying is rightly saying that it is adjusted against the opening provision itself only. But what happens is that our returns arise, we receive returns in 2 financial years. So some portion we get in this year, some portion we get next year. So this -- remaining portion will be received in second and third quarter. So the returns pertaining to the last year. So accordingly, the INR 180 crores of opening provision will be adjusted according in that only. So this is just the first quarter only. This INR 180 crores opening provision is for the full year.

We take the next question from the line of Mahendra Jain from Way2Wealth.

Sir, I just need to understand road map for the next 3 years, like in cotton, we are growing. So where the margin will improve in cotton in future because of so much unorganized sector or tough competition? And as we are like offsetting this winter with cotton and home textile, so where you see in next 3 years, we will be in margin in cotton plus contribution in cotton? Like, what will be the ratio of contribution of home textile and cotton in the next 3 years?

I think if you witnessed the trend from last 2, 3 years, it is clearly visible that the cotton sales have been increasing as far as total sales are concerned, as a percentage of total sales. So we almost have reached, I think, around 45% of cotton and 55% of winter wear sales. So we also have said that in next 2 to 3 years, we will even out in summer and winter sales. And eventually, the cotton sales will surpass the winter sales. So that is the ultimate target, and we are basically set for this kind of target. And as far as -- what was the second question?

Margin, what is the margin scenario in 3 years, like, in cotton, be of competition or unorganized sector. So how we see the margin as our brand is reputed, so where we see the margin, sir, as we speak? Means improve.

Sorry, I'll be pleased to share that we have a better margin in cotton products on winter products as of now. If I -- it is almost 100 basis points up as compared to winter wear products in cotton segment. So there is no worry about the margins in cotton segment. Already, the margins are equal or better in cotton segment. And we anticipate that we will maintain the margin in cotton segment as we have certain advantages. We are #1 in T-shirts in India. Almost we sell 2 million pieces in India, which is growing at a very good rate. At the same time, other categories also, if you have seen the volume growth of shirts, trousers, denims, all the categories are growing. So this is giving us confidence that we'll be able to maintain margins going forward also. And overall, for next 3 to 4 years, we said earlier also that we're looking for a double-digit growth going forward. Even in this financial year, earlier, we indicated that we might grow at around 20%. But seeing the geopolitical conditions and also to save ourselves, we planned less inventory so that in case something goes wrong, so we are not trapped at the retail end or at the consumer end. So that is why some of the inventory has been cut. Still, we are very confident of growing double-digit in this financial year.

Sir, where we stand in home textile in general scenarios in market, like, our products are very well accepted and -- yes.

Yes, I'll be pleased to share that last year, we grew around 12%. And this year, we anticipate a growth of approximately 20% to 25% in home textile segment. So the revenue-wise, it was around, I think, INR 170 crores last year. So this year, we should be ending at around INR 215 crores. So that would translate into a growth of 20% to 25%. So we are well positioned and brand is -- have a very good recall. And also our summer wear collection in home furnishing is growing at 60% to 70% as compared to last financial year. So I think we'll be doing approximately 20% to 25% in home textile sales in this financial year as far as growth is concerned.

And sir, what is our CapEx plan? Like, you have mentioned that we are modernizing our plant. This is just I mean, working CapEx or something you are adding or -- and what cash we have on books now after solar and all this?

No, we are a very asset-light business. The CapEx only goes in warehousing, which already we have built in this financial year. And there are some modernization of machine, which is not beyond INR 10 crores to INR 15 crores. So it's a very CapEx-light business, and we'll maintain that CapEx guidance of INR 30 crores also for next financial year.

Okay. Sir, what is the cash in books right now and what we are planning with that in future? As a very strong -- as our market cap is quite -- I mean, equal to the net worth of the company. So are you, sir, planning anything to, like, plant visits or analyst meet or something like that you are planning to just make aware people about the valuations?

Like, the cash is INR 305 crores in books, and we always invite all our analysts and stakeholders to visit us and to see us how we have been doing here. And everybody is welcome to visit us. And even after this con call, if there are any questions which are left unanswered, you can always give a query to our Valorem Advisors, and we'll be happy to answer it.

So it is INR 305 crores, no, cash in hand?

Yes. Yes.

Okay, sir. And how's the solar been -- I mean, when we are expecting return on that to start...

So the CapEx on solar projects have not yet started. It will be -- we are under the stage of land aggregation. And so I think in the next 9 to 12 months, we should be commissioning the plants and we should start the billing from next financial year, so.

Any further plan to do more CapEx in solar, I mean, more investment in solar as we are having a...

But we would first want to implement and commission these projects so that we get the confidence. But yes, so we are putting around 50 megawatts in DC, around INR 150 crores of investment. So we would want to complete this investment first, commission, start the billing of the project and then move on to new tenders. But we are very optimistic about this segment. But if something interesting comes up, we will be more than happy to -- and also -- yes, sorry.

Sir, any other vertical, I mean, you are planning in mind, like, something like we are in footwear. So any other vertical we are planning to go into that in future, like, or we are [indiscernible] our own business?

So footwear is a category which is -- which belongs to the lifestyle segment also. And we, as a brand, when we move into lifestyle, we have to cater to all categories. So category addition will keep on happening, whereas solar is a different vertical that we've undertaken. For now we're just focusing on retail and solar. No other segments are being looked at.

Okay, sir. Okay. And sir, I would like to visit, I will request, I mean, your RSVP I would like, sir.

Sure. So we'll ask our Company Secretary, Ankur Gauba, to coordinate with you, and we'll get back to you.

We take the next question from the line of [ Neeraj ], an individual investor.

Sir, my question was on the overall sales. How much is the component which is from a B2B sales perspective and how much is that which is being sold directly by the company? So if I look at last year sales was INR 1,300 crores was volume. So roughly what is the percentage?

More than 90% is B2B sales. It's only online sales, which is directly from our website to consumers. So that contributes, I think, 3% to 4%.

Yes, even online, only 20% of the total online sales comes from our own website. Yes, and around 145 company-owned EBOs, that is the direct sales that reaches the consumers.

That is the consumers.

No, so basically from the company's owned EBO, how much is the sales that is coming across? Is it, like, only 10% and the remaining is coming from the B2B vendor?

We can check back and we can write back to you. I don't have a figure right now, but it's approximately -- it should be around 20% of the sales of total EBOs, I think. So that is company-owned. So the sales would be like that only. But exact sales, we can -- you can separately write to us and we will answer it.

Okay. And just coming on the sales return part, it is comparatively quite high. If I look at the overall sales and the sales return, it is coming to be around almost like 25 to 30 percentage of the sales which we do. How is it that -- I mean, this basically adds an additional burden on the P&L as well? How do we plan to reduce this amount of sales return?