MONTECARLO - Monte Carlo Fashions Limited Share Price

Management Outlook and Major Points:

Outlook:

• Revenue & Margins: Management expects continued improvement in FY26, with higher revenue and margins driven by stable raw material prices, price hikes, reduced discounts, and better inventory control. Q4 FY25 is anticipated to outperform Q4 FY24 due to early summer dispatches and lower discounts.
• Demand & Sentiment: Positive consumer sentiment from tax reductions (Union Budget) and RBI rate cuts is expected to boost demand in FY26.
• Growth Channels: Online sales (40% growth in FY25) and large-format stores are key growth drivers. Expansion into underpenetrated regions (West/South India) and premium segments is prioritized.

Major Points:

1. Financial Performance:

   • Q3 FY25 revenue grew 9% YoY; EBITDA surged 27% with margins at 28.23%.
   • 9M FY25 revenue up 5% YoY; EBITDA margin improved to 20.21%.

2. Expansion:

   • Targeting 45"“55 new EBOs annually (469 currently).
   • Cloak & Decker brand expanded to 10 EBOs; quick-commerce partnerships (Blinkit, Swiggy) enhance reach.

3. Margin Drivers:

   • Price hikes, lower discounts, and stable raw material costs boosted realizations. Gross margins rose to 46.8% in Q3.
   • Inventory normalization and disciplined production improved profitability.

4. Segment Performance:

   • Home Textiles: 13"“15% growth in FY25; expansion via adjacencies to existing EBOs.
   • Online Sales: Significant growth (40% in FY25); own website gaining traction.

5. Competitive Landscape:

   • Focus on premium segments limits direct competition with low-cost players (e.g., Shein). Market consolidation likely as smaller brands struggle.

6. Acquisitions: Open to strategic buys in premium categories or geographies (South/West India) to fill portfolio gaps.

7. Capex & Debt: Normal capex of Rs.15"“20 crore planned for FY26; working capital debt (Rs.476 crore) to reduce post-summer season.

8. Channel Strategy:

   • EBOs target 5"“7% like-for-like growth; MBO/SIS focus on secondary sales. National chains remain critical despite sector challenges.

Question 1: "Congratulations on a good set of numbers. Just a few questions from my end. Firstly, sir, I would just want to understand on cotton and woollen segment, volumes have been flat more or less. I mean, woollen has grown by 1.6% and cotton degrown by 3.6% in volume terms. But however, in absolute value, we've seen like a 5% growth in cotton and a 13.4% growth in woollen. So that just highlights that we've increased the average realization for our products in these segments. So can you please elaborate more on that?"
Answer Summary: The increased realization in cotton and woollen segments was due to reduced discounts, improving profitability. Discount rationalization and stable raw material prices contributed to higher margins, with no volume impact expected going forward.

Question 2: "So sir, I mean, earlier, we were a bit more sceptical about the demand environment per se. And at a company level, we are focusing more on profitability. With the increasing competitiveness in this industry and how sustainable are these price realizations? I mean, I think my second question is also on the lines of our gross margins, which has come at 46.8% this quarter, which is a significant rise and that has eventually contributed to a healthy profitability this quarter. So I wanted to more understand on the sustainability of these margins and realizations going ahead for our main two segments?"
Answer Summary: Margins are expected to improve further due to stable raw material prices, price hikes, and reduced discounts. Pre-winter trade bookings show positive trends, and full-year FY25 guidance reaffirms single-digit revenue growth with margin expansion.

Question 3: "Sir, would you speak a bit more on the competitive intensity we are seeing in this space? I mean, eventually, if we are sustaining these realizations and we're talking about margins being increased, will it eventually take a hit on our volumes or how are we planning growth going ahead, if you could highlight that road map?"
Answer Summary: Volume impact is unlikely due to expanded distribution (EBOs, online, SIS) and inventory normalization. The worst is behind the company, with next quarter and FY26 expected to outperform previous periods.

Question 4: "Sir, will it be possible to give us an idea of, in December '24, what was that inventory levels at the channel? I mean, if you can just highlight a number of days as well, if we keep an active number, what are the inventory days at a channel level right now?"
Answer Summary: Inventory stood at Rs.476 crores (vs. Rs.428 crores YoY), attributed to seasonal planning. No specific days' metric provided, but inventory is under control and aligned with growth strategies.

Question 5: "Lastly, I saw that we've opened exclusive outlets for our home textile segment. And I feel earlier, 2 years ago, we were doing pretty good in that segment. And I think the momentum has picked up going into this year. So we've done around Rs.53 crores kind of quarterly sale. I think it's the highest in the last 7, 8 quarters that I see in terms of home textiles. So can you speak more on your strategy for home textiles and how much revenue you're seeing? And if we can break up in terms of unit economics in terms of revenue per square foot for the stores we are opening?"
Answer Summary: Home textile growth (13"“15% YoY) is driven by adjacently placed EBOs (not standalone stores) and distributor/MBO channels. Focus remains on profitability, with FY25 revenue projected to exceed initial flat-growth guidance.

Question 6: "Sir, last question, just if you can "” I know it a little bit more forward-looking, but if you could just get a flavor of the quarter 4. Because I believe like in this last calendar year, on an interview, we spoke about good order for summer booking, which highlights a good Q4 for us. So I mean, last year, we had quite bad for us, Q4, because of multiple reasons. How do you see this Q4 panning as compared to last Q4 in terms of profitability, a ballpark?"
Answer Summary: Q4 FY25 is expected to outperform Q4 FY24 due to lower inventory, reduced discounts, and early summer dispatches. Full-year guidance remains intact with improved margins and revenue growth.

Question 7: "Congratulations on a very good profitability performance in Q3. Sir, there is this tax reduction in the Union Budget that has been announced plus our base is also low, right? So in FY25, we will see almost like a single-digit growth. So any outlook that you can sort of give us for FY26 because already you are seeing very good momentum in the trade shows for both summer and winter offerings. So what kind of growth and profitability should we expect for FY26?"
Answer Summary: FY26 is projected to outperform FY25 in revenue and margins, with detailed guidance post-March trade shows. Positive indicators include stable raw material costs, improved inventory management, and macro tailwinds (tax cuts, rate reductions).

Question 8: "Sir, just a small follow-up. When you say '26 will be better than FY25, so is it like growth in FY26 should be better than growth in FY25 or you're just mentioning that FY26 absolute revenue should be better than FY25 absolute revenue?"
Answer Summary: Both absolute revenue and margins are expected to improve in FY26 vs. FY25, driven by volume recovery, pricing strategies, and operational efficiencies.

Question 9: "Sir, there has been some debt increase. So I just wanted to better understand as in what is driving that? And from an ROE perspective, '24 was sort of very muted. It was like 8%, 9% only. So what are the initiatives that we are taking to improve the return profile of the business?"
Answer Summary: Debt increase is temporary (working capital for inventory/summer planning), with normalization expected in Q4. ROE improvement is tied to profitability growth, with no major working capital optimization plans.

Question 10: "Sir, Reliance recently announced the revival of Shein. So how do you look on that deal? Does it "” will it affect your business?"
Answer Summary: No direct competition with Shein, as Monte Carlo targets the upper-premium segment vs. Shein's low-cost focus. Market positioning and brand equity mitigate overlap concerns.