Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA-/Stable/Crisil A1+' ratings on the bank facilities and commercial paper programme of Monte Carlo Fashions Ltd (MCFL).

 

The ratings continue to reflect the healthy business risk profile with established market position, strong financial risk profile and moderate liquidity of the company. These strengths are partly offset by improving-albeit-limited geographic diversification, seasonality in the business and exposure to intense competition in the apparel industry.

 

The operating income of the company is expected to grow by 7-10% on year in fiscal 2026 to Rs 1200-1250 crore on account of the increased presence in southern and western India. The company is planning to open ~40-50 stores every year in the medium term. This is in the backdrop of 3.6% increase in operating income to Rs 1100 crore in fiscal 2025 from Rs 1061 crore in fiscal 2024. The growth is on account of the increase in demand leading to higher net sales and lower-than-expected sales returns. The company also witnessed a rebound in profitability with earnings before interest taxes depreciation amortisation (EBITDA) margin of 17.1% during fiscal 2025 from 13.7% in fiscal 2024. The EBITDA margin is expected to remain at 17-18% in the medium term owing to lower discounts amid healthy demand. The growth in operating income with sustenance of profitability will remain key monitorable

 

The financial risk profile continues to be strong with working capital debt expected at Rs 250-275 crore in fiscal 2026 against Rs 294 crore in fiscal 2025 while lease liabilities are projected at ~Rs 270-300 crore against Rs 227 crore. In the absence of any major debt funded capital expenditure (capex), long term debt is expected to remain nil. The capital structure is moderately leveraged with adjusted gearing expected to increase to ~0.65 time from 0.6 time. Debt protection metrics such as interest cover and net cash accrual to adjusted debt (NCA/AD) are expected to remain healthy at ~4.0 times and ~0.2 time, respectively, in fiscal 2026 against 4.3 times and 0.19 time, respectively, in fiscal 2025. Any moderation in debt metrics due to higher-than-anticipated borrowings or reduction in profitability will remain key sensitivity factor.

 

MCFL has a strong liquidity profile with expected net cash accrual of Rs 80-100 crore annually in the medium term. The company also has access to fund-based limit of Rs 475 crore of which ~Rs 294 crore was utilised as on March 31, 2025. Furthermore, the company had ~Rs 164 crore as liquid investments as on March 31, 2025, and an additional Rs 122 crore in bonds and debentures. The company had market capitalisation of ~Rs 1167 crore as on March 31, 2025.

Analytical Approach

Crisil Ratings has considered the standalone financial and business risk profiles of MCFL. The lease liabilities are considered as debt since these are part of the business, and the company has an obligation to pay lease rentals.

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 brands in the summer and winter wear markets. The company had strong distribution and retail network with 471 exclusive brand outlets (EBOs), 1949 multi-brand stores (MBOs), 971 national chain stores (NCS) and 497 Shop-in-shop (SIS) as on March 31, 2024. The company derived 54% of its revenue from the cotton segment, 29% from the woollen wear segment while other segments contributed the balance.

 

• Strong financial risk profile: The financial risk profile is expected to remain strong with recovery in profitability, healthy net cash accrual, comfortable debt protection metrics and robust liquidity. Net cash accrual is expected to remain at Rs 80-100 crore in the medium term on account of recovery of operating performance against negligible long term debt obligations. Adjusted interest coverage is expected at ~4.0 times in fiscal 2026 against 4.3 times in fiscal 2025. The capital structure is expected to remain moderately leveraged due to an anticipated increase in lease liabilities though comfortable on account of no major capital expenditure (capex) plan and likely gearing of around ~0.60 time over the medium term.

 

Weaknesses:

• Exposure to intense competition in the apparel segment, seasonality and limited geographical diversity: MCFL caters to premium and quality-conscious customers and has a 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 up 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 years, MCFL has been improving its geographical diversification by opening new stores in the south, western and central regions. Further, MCFL exhibits seasonality in its revenue as demand for its products spikes in winter (Q3) and due to festivities. A weak winter season may adversely impact demand and hence overall sales.

 

• Large working capital requirement: Gross current assets (GCAs) are expected around 310 days as on March 31, 2026 (335 days a year earlier) owing to high inventory of ~190 days (201 days) and debtors of ~130 days (138 days). The high debtors and inventory are partly offset by payables of ~70 days (73 days). GCAs are expected to remain around similar levels given the nature of operations and seasonality in demand, leading to maintenance of large inventory for stock keeping units at its stores at the start of winter and summer seasons. Debtors also remain high with credit period of over 90 days given to its distributors for selling in MBOs, although the company uses the outright sale model for some of its channels mitigating the inventory risk. The decline in creditor days is due to the change in mid, small and medium enterprises (MSME) policy. However, MCFL’s ability to maintain its working capital cycle will remain monitorable.

Liquidity: Strong

Unencumbered cash and equivalents including liquid investments stood at ~Rs 164 crore as on March 31, 2025. Additionally, the company has investments in bonds and debentures of ~Rs 122.31 crore. The average bank limit utilisation for MCFL stood at 59% for the 12 months through March 2025. The company has nil long-term debt obligation, and no major debt funded capex plans over the medium term. Existing cash and equivalents, unutilised bank lines along with annual net cash accrual of Rs 80-100 crore should cover the incremental working capital requirement over the medium term.

Outlook: Stable

MCFL will continue to benefit from its healthy business and financial risk profiles, and established market position.

Rating sensitivity factors

Upward factors:

• Revenue growth of 20-25%, supported by better geographical and brand diversification, leading to increasing scale of operations and net cash accrual over Rs 200 crore on a sustained basis
• Improvement of profitability with EBITDA margin remaining above 20%.
• Sustenance of strong financial risk profile including the liquidity.

 

Downward factors:

• Weakening of the operating performance with sluggish revenue growth and/or sustenance of EBITDA margin below 15%, impacting cash accrual
• Higher-than-expected debt funded capex weakening the financial risk profile.
• Sustained increase in the working capital cycle and or higher-than-expected dividend outgo weakening the liquidity position

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 manufacturer 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 the Bombay Stock Exchange and National Stock Exchange in December 2014.

 

MCFL is a part of the Nahar group of companies that includes OWML, Nahar Spinning Mills Ltd (rated Crisil A/Negative/Crisil A1) and Nahar Industrial Enterprises Ltd (rated Crisil A-/Negative/Crisil A2+), which has extensive experience in the textile and apparel industries. MCFL operates on an arm’s length basis from its group companies.

Key financial indicators*

As on/for the period ended March 31	Units	2025	2024
Operating Income	Rs crore	1,100	1,061
Profit after tax (PAT)	Rs crore	79	61
PAT margin	%	7.2	5.7
Adjusted debt/adjusted networth	Times	0.6	0.5
Adjusted Interest coverage	Times	4.3	4.2

*As per analytical adjustments made by Crisil Ratings

Any other information: Not applicable