| Monte Carlo Fashions Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'; 'CRISIL A1+' assigned to Bank Debt; rated amount enhanced for Bank Debt | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings at 'CRISIL AA-/Stable/CRISIL A1+' on the long-term bank facilities and commercial paper programme of Monte Carlo Fashions Limited (MCFL) while assigning rating at ‘CRISIL A1+’ on the short term bank facilities. CRISIL Ratings has also withdrawn its rating on Rs. 80 crore of commercial paper programme upon request from the entity and receipt of requisite documentation in line with the withdrawal policy of CRISIL Ratings.
Operating income improved by 24% in fiscal 2023 driven by recovery in demand, rise in price realization and opening of new stores. Earnings before interest tax depreciation and amortization (EBITDA) margin remained steady at 19.5% during fiscal 2023 (20.1% in fiscal 2022) through passing on increase in raw material prices and cutting down discretionary expenses. Scale of operations is expected to increase due to strong market position of MCFL in the through its established brand, Monte Carlo, and pan India presence through its wide distribution network.
Financial risk profile remains strong driven by gearing ratio and adjusted interest coverage remaining around 0.3 times and 9.51 times during fiscal 2023. The capital structure is expected to remain comfortable despite ongoing capital expenditure plan on the blanket segment and the gearing is expected to remain below 0.30 times over the medium term. Debt protection metrics are also expected to remain healthy, with interest coverage ratio expected to remain over 6.5 times over the medium term.
The rating continues to reflect strong market position of MCFL and robust financial risk profile. This is partly offset by improving-albeit-limited geographic diversification, seasonality in the business, large working capital requirement 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:
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 356 exclusive brand outlets, 2498 multi-brand stores (MBOs), 859 national chain stores and 327 other type of stores as on March 31, 2023. The company derived 56% revenue from the cotton segment, 24% from the woollen wear segment while other segments contribute the balance as on March 31, 2023.
Operating income have grown by 24% in fiscal 2023 with higher discretionary spending from end users and increase in price realisations. Operating income is expected to grow by 15-20% over the medium term driven by the leading brand, Monte Carlo, which 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 19-20% since past 3 years that should continue along with increase in scale of business. Operating margins are expected to remain in the range of 19-20% going forward as well.
The financial risk profile remains strong with healthy net cash accruals, comfortable debt protection metrics and strong liquidity. The net cash accruals was Rs. 175 crores during fiscal 2023 (Rs. 120 crore during fiscal 2022) and is expected to be in the range of Rs 170-180 crore over the medium term. Capital structure and debt protection metrics remained healthy during fiscal 2023 with adjusted gearing of 0.26 times and adjusted interest cover of 9.5 times (0.10 times and 13.1 times respectively during fiscal 2022). Capital structure and debt protection metrics are expected to remain strong, with gearing is expected to remain below 0.30 times and adjusted interest coverage expected to remain over 6.5 times over the medium terms.
Weaknesses:
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 13% (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.
GCAs increased in fiscal 2023 to 323 days in fiscal 2023 as against 268 days in fiscal 2022 owing to increase in inventory and debtor days. Going forward, GCAs are expected to be elevated high around similar levels given the nature of operations and seasonality in demand, leading to maintaining of large inventory for stock keeping units at its stores at the start of winter and summer season. The debtor days also remains 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 283 crore as on March 31, 2023. Net cash accrual of Rs 170-180 crore over fiscals 2024 and 2025 are sufficient to cover debt obligations of Rs 3-4 crore. Average working capital limit utilisation remained low at 26% over the last 12 months ending February 2023. |
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 woolen 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*
*as per analytical adjustments made by CRISIL Ratings ** based on abridged financials published by company in stock exchange |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating withdrawn
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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Criteria Details
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