Monte Carlo Fashions: brand leverage and retail expansion to drive growth
A subdued business recovery in the September quarter notwithstanding, shares of Monte Carlo Fashions Ltd have gained substantially since its results announcement in November.
The stock gained as the company’s management, in a post-results conference call, exuded confidence it is well placed to deliver double-digit revenue growth in the current and next fiscal years. Revenue growth in the September quarter and the first half of the current fiscal year stood at 9.3% and 1.2%, respectively. In the previous fiscal year, it dropped 6% as demonetisation hurt sales in the crucial winter season. The company has a large presence in woollen apparel and as a consequence the winter season and the third quarter of the fiscal year generates more than half annual revenue.
According to the management, business is now normal and the order book for winter wear this year is higher by 15%, which should translate into similar growth for the current fiscal year.
Further, with the cotton apparel business gaining traction and the company looking to expand its retail footprint in the southern and western parts of the country, analysts expect the double-digit revenue growth momentum to continue.
“We have increased our revenue estimates for FY19E/20E on the back of: i) additional growth levers in the cotton business from sub-brands, ii) higher growth expectations from the online and institutional businesses, and iii) improved guidance for store expansion,” Emkay Research said in a note on Monte Carlo. The broking firm estimates the company to post revenue growth of about 15% for the next two fiscal years.
Monte Carlo launched its cotton apparel business several years ago to reduce its dependence on woollen apparel.
It created several sub-brands and ventured into home furnishings and children’s sportswear as well. The new initiatives have helped de-risk its business model from winter season and woollen products.
The strategy now is to take those products across the country. So unless another extraneous event like demonetisation hits the industry, the retail expansion should ensure revenue growth.
But the journey will not be smooth. Relatively stronger winter seasons and brand awareness have made it easy for Monte Carlo to gain customer acceptability (for cotton apparel products) in the northern market.
In the south, where winters are less severe (and hence Monte Carlo is not so well-known), the company will have to create consumer awareness. It may also have to step up promotional expenditure which can weigh on margins.
“There are challenges in the southern market being a brand which was known as a woollen wear brand to convince the consumer and the retailer that we are equally strong in summer wear so there are challenges and the challenge is I think also in the terms of awareness about how strong we are in summer, how strong we are in designing so those challenges we are tackling and we are understanding this market from last three four years,” Sandeep Jain, executive director of Monte Carlo, told analysts after the September quarter results. Success in this will not only ensure long-term growth but also expand stock valuations.