Issue Highlights
Issue Period | 3/12/14-5/12/14 |
Price Band | 630-645 |
Issue Type | 100 % Book Building |
Face value | Rs. 10 |
Issue Size | Rs. 342.3 -350.4 Crore |
Minimum Bid Lot | 23 shares |
Maximum Retail Subscription | Rs. 1,92,855 (13 Lots) |
Industry | Textile & Apparel |
Listing | BSE,NSE |
BRLM | SBI Capital, Axis Capital, Edelweiss Fin. Services, Religare |
Registrar | Link Intime India Pvt. Ltd. |
Industry & Company Profile
Indian textile & apparel industry is worth US 95 $ and growing at a CAGR of 9%.Though organized sector contributes only 17-19 % of the same but is supposed to reach up to 40 % by 2020.
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| The Product Portfolio of MMFL |
The company offers diversified product range with in woolen,cotton and cotton-blended apparel.
Presently MCFL operates 196 exclusive brand outlets out of which 18 are company-owned and the rest are on franchisee basis.
MCFL is supposed to foray into its own e-retail business after this IPO as current FDI policy forbids companies with foreign investments to go for B2C (business to consumer) activities but after a company going public this restriction shall no more be effevtive.
Presently, Samara Capital ( a Mauritius based private equity firm) holds around 18 % stake through its affiliate.
The Offer
Offer: 54,33,016 equity shares
QIB category: 27,16,507 equity shares
Non-institutional category: At least 8,14,953 shares
Retail category: At least 19,01,556 eq. shares
Equity shares Outstanding prior to the offer: 21,732,064
Equity shares Outstanding after the offer: 21,732,064
Objects of the Issue
This issue is for listing benefits to the company and for providing liquidity to existing customers (by stake sell by existing shareholders) and thus company shall not receive any proceeds from this offer.
Issue related expenses shall be borne by selling shareholders proportionately.
Concerns
(1) As being a predominantly winter apparel player, Seasonality of business and mild (and short) winter could act detrimentally.
(2) Slowdown in the economy has a potential to reduces the purchasing power of people and could badly batter the premium brands like Monte Carlo.
(3) Operations are primarily concentrated in northern and nort –eastern regions of India
(4) In Indian apparel industry only 19% of sales is through organized players while for countries like USA this figure falls over 80 %. Though this fact prima-facie appears like an opportunity but the killing competition especially from foreign players will be a concern.
Financials:#
Parameter | FY 14 Value |
P/E | 25.3 |
P/B | 3.7 |
Profit CAGR % (3 years) | 6.5 % |
PEG (Profit) | 3.9 |
NPM % (Net Profit margin) | 10.7% |
ROCE % | 20.3 % |
ROE % | 14.6 % |
Total Debt/Equity | .7 |
Interest Cover | 10 |
EBITDA Margin % | 18 % |
OCF/Sales | 4.6 |
Inventory Turnover Ratio | 3.7 |
Working capital Days | 156 |
AR Collection Period | 57 |
EV/EBITDA | 16.8 |
# all calculations at upper value of the price band
Comparison with peer:
Parameter | MCFL | Kewal Kiran (KKCL) # |
P/E | 25.3 | 34.43 |
PEG (3 years) | 3.9 | 2.57 |
P/B | 3.7 | 7.79 |
NPM % | 10.7% | 17.68 % |
ROCE | 20.3% | 33.08 % |
ROE | 14.6 % | 23.06 % |
# money control data
Inference: The valuations of this IPO are stretched and in PEG terms MCFL is more expensive than its established peer KKCL-the company that manufactures brands like Killer, Lawman, Integrity and Easies. Besides KKCL having a proven track of record, considering other financial parameters, KKCL appears as a better choice than MMCL but the future foray of MMCL into e-retailing makes the issue interesting.
This issue shall not fetch any proceeds to the company but going public shall pave its way towards e-retailing which was so far not possible owing to norms.
I think I should go for this one considering listing gains (due to positive sentiment of the market coupled with the re-rating hopes from the company's future foray into B2C business) but only after having a glance at FII subscription figures for the issue. In case of lackadaisical FII response, I shall skip this issue.
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