Couldn't find a thread here on Monte Carlo Fashions Ltd (MCFL).

Company: MCFL
Price: 415/share
P/E: 15.53
Dividend: 2.40%
D/E ratio: 0.31

Why is MCFL worth looking at?

MCFL is a trusted known brand in North India for woolen wear. As someone who has lived in North India for a majority of his life, I can attest they make good products and there is significant demand in the winter season for their sweaters, cardigans and other knitted wear. The company is also into cottonwear for which it is not very well known, but the MC brand helps leverage some growth there too. As of now, both woolen wear and cotton segments are growing well. The business model of the company is captured in the below screenshot:

screen3.png827x537 79.1 KB

Product Revenue Distribution History

The segment analysis of revenue distribution is as below, taken from investor presentation:

screen.png953x633 58.2 KB

Geographic Revenue Distribution

The geographical distribution of revenue distribution is as below, taken from investor presentation:

screen2.png953x635 47.6 KB

Growth Triggers

• MCFL sells primarily in North and East India but is now expanding to the south and central India. Obviously these are regions where woolen wear is not a big draw. So the focus will be on cotton wear. MCFL is not known for its cottonwear, so growth will depend on leveraging its brand name [more info on expansion to other regions in the link to investor presentation below]
• Market share in south and central India is growing, albeit slowly.
• Since the IPO, the company has added 22 retail outlets - 220 currently, up from 198.
• No major capex planned for next two years - operating leverage to play out.

Key Risks

• MCFL is owned and run by the Nahar Group. They have several listed entities, Nahar Spinning Mills being the second largest one. Nahar Spinning Mills makes cottonwear for MCFL on job work basis - related party transaction
• Nahar group entities have eroded shareholder wealth over the past years.
• High seasonality - most sales in winter only. Year round revenue would depend on growth in cotton wear segment.
• High competition in branded cottonwear segment. While MCFL has a niche spot in woolen wear, cottonwear is another animal altogether.

Is it a good entry point?

At a PE of 15.53, MCFL trades below other branded apparel stocks in the market. One that comes to mind is Indian Terrain Fashions Ltd, which trades around 18-19 PE and may trade higher eventually. I am not advocating a short term trade here, I just think this is a good entry point for a long term compounding machine.

Misc

• The above is a short summary of my views on the stock. Invite views on why this stock is trading at a lower valuation vis-a-vis the rest of the industry. Is promoter quality a concern considering other Nahar entities have not built shareholder wealth over the years? Any leads on promoter quality would be great.
• Attached Q2 2015 investor presentation for more detailed info - Investor Presentation Q2 2015
• No holding currently, thinking of adding.

This is my first thread here. Please bring any oversights of the posting guidelines to my notice, I will rectify as soon as possible.

I completely agree to give company a chance, but its something like the beer game example. The structure of industry determines how they behave.

the list of associates disclosed here is the easy one and u would never know from a working capital perspective how much debtors are owned by them. Remember BS is just a snapshot of point in time.

the actual debtors could be much longer in form of companies managed by friends in Hongkong and Dubai

Also how do u determine the end sales? if it happens to associates what happens after that.

Regarding debt to equity, the whole industry would seldom have large long term debt. they always have WC debt which is much easier to showcase.

if u can try speaking to few bankers who fund these guys....

Regards,

Over the past couple of years (even more in some cases) pharma companies have outperformed a strong market. If you notice it is not just Ajanta, but a whole host of names from the sector that have corrected significantly from their peaks.

This has more to do with the fact that FIIs/ funds/ HNIs are looking to take some of their profits off the table, which is but natural. These investors as others would have made significant returns over these past couple of years in a lot of these names and are now looking to lock in some of their gains -

Why now? In my opinion its because a lot of these names have gone from being undervalued to being fairly and in some cases over valued. This would mean that they may not be able to provide out-sized returns at least in the short to medium term.

If as an investor you have a long term view of the business/ industry I don't think these corrections are anything to worry about. Whether or not this provides a buying opportunity though is very stock specific and is dependent on your understanding of the future potential of the business.

Personally, I would not blindly go out and buy the names that are falling - we tend to do that more out of a price anchoring bias.

Buy if you truly understand the business and its growth path and believe that the current price does not completely reflect current or future value.

Disc: Pharma companies > 60% of my PF

@rapidriser Could you please share the source of information? Where can I check prevalent prices of food colours?

@rupeshtatiya

An important thing to notice , the improved margins @ 21% has been sustained for last 2 qtrs. Compare this against the usual margin of 16%. And this is an improvement by qualitative factors in the business. Hence, naturally one can assume that this margin can be sustained going forward. I think 2 qtrs give a certain level of confidence and being in pharma - a stable and defensive business. Based on these assumptions, my forecast for FY 16 profit is Rs 1284 cr which gives an EPS of 76. Rs 964 already achieved. Torrent can fall in the coming qtrs as traditionally profits are low in these qtrs. which gives an oppurtunity to add more. Hence your figure of 55 seem to be on the lower side. They need to make Rs160 cr each qtr to achieve my forecast of Rs 1284 cr.

Rgds

Discl: Invested