| Monte Carlo Fashions Limited | ||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||
| Rating Action | ||||
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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 debt instrument of Monte Carlo Fashions Limited (MCFL).
The rating continues to reflect 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 22% in fiscal 2023. Increase in sales was owing to recovery in demand, rise in price realization and opening of new stores. The company has maintained its operating margins in range of 19-20% through passing on increase in raw material prices and cutting down discretionary expenses. The scale of operations is expected to increase to Rs. 1826 crore in fiscal 2026 as against Rs. 1103 crore in fiscal 2023 along with maintenance of operating margins at 19-20%.
The capital structure remains comfortable, with gearing expected to remain below 0.15 times in next few fiscals. Debt protection metrics are expected to remain healthy, with interest coverage ratio of over 10.5 times, net cash accrual to adjusted debt ratio at over 1.5 times and debt to earnings before interest, taxes, depreciation, and amortization of 0.4 time in the medium term.
The rating is, however, constrained 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: 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 347 exclusive brand outlets, 2364 multi-brand stores (MBOs), 788 national chain stores and 306 other type of stores as on December 31, 2022. The company derived 51.5% revenue from the cotton segment, 26.8% from the woollen wear segment while other segments contribute the balance as on Dec 31, 2022.
Sales have grown by 22% in fiscal 2023 with higher discretionary spending from end users and increase in price realisations. Revenue is expected to grow by 15-20% over the next few fiscals, with networth increasing to over Rs 1339 crore by fiscal 2026 from Rs 812 crore in fiscal 2023. 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 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.
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 180-220 crore in next two fiscals. With nominal maintenance capex of Rs 10-15 crore, gearing will remain below 0.15 times in the medium term.
Debt protection metrics are expected to remain comfortable, with estimated interest coverage and net cash accrual to adjusted debt ratios at over 10.5 times and 1.5 times, respectively over next few fiscals. Growth in profitability, led by better scale of operations, should support the metrics over the medium term. Total outside liabilities to tangible net worth 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 14% (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 are expected to be high around 280-300 days in next few fiscals, driven by high inventory and debtors of 140-150 days and 110-130 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 266 crore as on April 10, 2023. Net cash accrual of Rs 180-220 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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 03-May-2023 in line with the lender-wise facility details as on 13-May-2022 received from the rated entity
Criteria Details
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