| Monte Carlo Fashions Limited | ||||
| 'CRISIL A1+' assigned to Commercial Paper; Rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A1+’ rating to commercial paper of Monte Carlo Fashions Limited (MCFL) and reaffirmed its 'CRISIL AA-/Stable' rating on the long-term bank facility.
The rating reflects strong market position of MCFL through its established brand, Monte Carlo, and pan India presence through its wide distribution network. The rating is further supported by robust financial risk profile with comfortable capital structure, healthy debt protection metrics and strong liquidity. Business risk profile has been supported by strong market position and steady increase in scale of operations, which improved by 46% in fiscal 2022. Increase in sales was owing to recovery in demand, rise in price realisation and opening of new stores. The company maintained its operating margins even during the Covid-19 pandemic through passing on increase in raw material prices and cutting down discretionary expenses.
The capital structure remains comfortable, with gearing of 0.1 time as on March 31, 2022, and is projected below 0.2 time over the medium term. Debt protection metrics has been healthy, with interest coverage ratio over 10 times in fiscal 2022, net cash accrual to adjusted debt ratio at 1.7 times and debt to earnings before interest, taxes, depreciation, and amortization of 0.4 time as on March 31, 2022.
The rating is, however, constrained by improving-albeit-limited geographic diversification, seasonality in the business, large working capital requirement (with gross current assets [GCAs] over 250 days) and exposure to intense competition in the apparel industry. |
Analytical Approach CRISIL Ratings has considered standalone financial and business risk profiles of MCFL. |
Key Rating Drivers & Detailed Description Strengths Healthy business risk profile with established market position MCFL has an established market position with Monte Carlo being one of the leading industry player in the summer and winter wear market. The company had strong distribution and retail network with 315 exclusive brand outlets, 2,108 multi-brand stores (MBOs), 740national chain stores and 287 other type of stores as on March31, 2022. The company derived 54% revenue from the cotton segment, 24% from the woollen wear segment while other segments contribute the balance in fiscal 2022. MCFL has also increased its e-commerce footprint with online sales of Rs 62crore in fiscal 2022 compared to Rs 37 crore in full fiscal 2021.
Sales have grown by 46% in fiscal 2022 with low base, full year of store operations, higher discretionary spending from end users and increase in price realisations. Revenue increased at a healthy compound annual growth rate of 11% over last five fiscals despite impact on revenue in fiscal 2021 due to the pandemic. Revenue may grow by more than 15% over the medium term, with networth increasing to over Rs 900crore by fiscal 2025 from Rs 687 crore in fiscal 2022. The leading brand, Monte Carlo, is an industry leader in the winter wear segment with brand size of around Rs 900 crore. MCFL has an in-house facility for designing and production of winter wear giving it additional control over quality and production.
The company has maintained healthy gross margins of over 40% and operating margin between 16% and 19% that should continue along with increase in scale of business. Operating margin of over 16% for the past five fiscals through 2021 reflects strong pricing power.
Strong financial risk profile The financial risk profile remains strong with healthy net cash accrual, comfortable debt protection metrics and strong liquidity. The net cash accruals are expected to be in the range of Rs 125-140 crore in fiscal 2023. With nominal maintenance capex of Rs 10-15 crore, gearing will remain below 0.2 times.
Debt protection metrics were comfortable, with estimated interest coverage and net cash accrual to adjusted debt ratios at over 10 times and 1.7 times, respectively, for fiscal 2022. Growth in profitability, led by better scale of operations, should support the metrics over the medium term. Total outside liabilities to tangible networth ratio remained below 0.7 time for the past five fiscals and this trend is expected to continue over the medium term.
Weaknesses Exposure to intense competition in the apparel segment, seasonality and limited geographical diversity MCFL caters to highly price- and quality-conscious customers and has dominant position in the winter wear segment. The competitive landscape for the apparel sector remains high. Competition in the company’s key product segment is becoming intense, notwithstanding the strong growth momentum. The company has been ramping its distribution network to sustain growth and maintain brand awareness. Furthermore, the ever-changing nature of trends makes it imperative to revamp the portfolio periodically. The company’s ability to constantly innovate and update its portfolio will, therefore, remain a key monitorable. The strong brand equity of Monte Carlo should continue to benefit MCFL over the medium term.
MCFL over the years has been improving its geographical diversification by opening new stores in the western and central region. However, with lower number of stores present in west and central region currently, the overall share of revenue from these regions was low at 15% (of revenue) indicating concentration to north and east region. Further, revenue of MCFL exhibit seasonality in its revenue as demand for its products spikes in winter (Q3) and due to festivities. Any impact in demand due to a weak winter season may adversely impact demand and hence overall sales.
Large working capital requirement GCAs were high at 284 days as on March 31, 2022, driven by high inventory and debtors of 148 days and 107 days, respectively. Given the nature of operations and seasonality in demand, the company has to maintain large inventory for stock keeping units at its stores at the start of winter and summer season. The debtor days remained high with credit period of over 90 days given to its distributors for selling in MBOs although the company uses outright sale model for some its channels mitigating the inventory risk. MCFL’s ability to maintain working capital cycle will remain a key monitorable. |
Liquidity: Strong Liquidity is supported by strong liquid investments, healthy cash accrual, low bank limit utilisation and low debt obligations. Cash balances including liquid investments stood at Rs 266crore as on March31, 2022. Net cash accrual of Rs 125-145 crore over fiscals 2023 and 2024 are sufficient to cover interest and debt obligations (Rs 5-15 crore). Average working capital limit utilisation remained low at 24% over the 12 months in February 2022. |
Outlook Stable MCFL will continue to benefit from its healthy business and financial risk profiles, and established market position. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MCFL was incorporated in 2008 as a wholly owned subsidiary of Oswal Woollen Mills Ltd (OWML), the flagship company of the Nahar group. MCFL was demerged from OWML in 2011. The company is an apparel retailer and manufacturers of woollen and cotton garments for men, women and kids. The brand Monte Carlo is renowned for winter wear. The company also has other brands such as Cloak and Decker, Alpha and Rock-It. Monte Carlo was listed on BSE and NSE in December 2014.
MCFL is a part of the Nahar group of companies that includes OWML, Nahar Spinning Mills Ltd and Nahar Industrial Enterprises Ltd, which has extensive experience in the textile and apparel industries. MCFL operates on an arm’s length basis with its group companies. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 07-Jul-2022 in line with the lender-wise facility details as on 13-May-2022 received from the rated entity
Criteria Details
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