Buy IPO of Monte Carlo Fashions as medium-long term investment

I am sure many of you, especially the ones from North India, would have been wearing Monte Carlo sweaters since long. If not, at lease you have seen them. Monte Carlo Fashions Ltd. (MCFL) is one of the leading apparel brands in India. Monte Carlo primarily caters to the premium and mid-premium branded apparel segment for men, women and kids. Their offerings include woolen, cotton and cotton-blended knitted and woven apparels and home furnishings under the ‘Monte Carlo’ brand.

The company’s net sales have grown at a CAGR of 16.3% over FY2012 to FY2014. Although, the EBIDTA margins have declined from 22% in FY2012 to 18.7% in FY2014, they are at sustainable levels. The net profit has grown at a CAGR of 5.8% over FY2012-FY2014.

At the lower end of the price band, the stock is valued at ~24.8x PE on FY2014 earnings which is fair considering its

i) strong brand image,
ii) strong distribution network,
iii) healthy balance sheet and
iv) widening product portfolio.

It is recommended to subscribe to the IPO at the lower end of the price band for at least two-year time period. If you are considering this IPO for less than two years, don;t expect big investment returns.

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