Monte Carlo Fashions Ltd (MONTECARLO) Q3 FY23 Earnings Concall Transcript

Monte Carlo Fashions Ltd (NSE:MONTECARLO) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Sandeep Jain — Executive Director

Raj Kapoor Sharma — Chief Financial Officer

Analysts:

Bhavika Choudhary — Emkay Global Financial Services Ltd. — Analyst

Rahil Shah — Crown Capital — Analyst

Deepan Shankar — Trustline PMS — Analyst

Devanshu Bansal — Emkay Global — Analyst

Nitya Shah — KamayaKya Asset Management — Analyst

Vikas Khemani — Carnelian Asset Advisors — Analyst

Danesh Mistry — Investor First Advisors — Analyst

Govindlal Gilada — Individual Investor — Analyst

Dhiral Shah — PhillipCapital PCG — Analyst

Akshay Kothari — Envision Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q3 FY ’23 Results Conference Call of Monte Carlo Fashions Limited, hosted by Emkay Global Financial Services. We have with us today from the management of Monte Carlo Fashions, Mr. Dinesh Gogna, Director; Mr. Sandeep Jain, Executive Director; Mr. R. K. Sharma, Chief Financial Officer; and Mr. Ankur Gauba, Company Secretary.

As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Ms. Bhavika Choudhary from Emkay Global Financial Services. Thank you. Over to you, ma’am.

Bhavika Choudhary — Emkay Global Financial Services Ltd. — Analyst

Thank you. Good morning, everyone. I would like to welcome the management and thank them for this opportunity.

I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Sandeep Jain — Executive Director

Very good morning, everyone, and thank you for joining us for this earnings call of Monte Carlo Fashions Limited to discuss the financial and the operating performance for nine months and the third quarter performance of financial ’23.

I would like to highlight that certain statements made or discussed over the conference call today will be a forward-looking statement. A disclaimer to this effect has been included in the results presentation shared with you earlier. Result documents are also available on the Company’s website and also have been updated on the stock exchanges. A transcript of this call would also be made available on the Investors section of Company’s website.

First, I would like to talk about the macro environment. The Indian economy has rebounded strongly despite the significant COVID-19 waves. Financial ’23 has seen a solid showing of Indian consumption story returning in full force. And we have also witnessed better than pre-COVID performance. All our stores across geographies continue to be fully operational and the strong brand pool of Monte Carlo is drawing in solid footfalls and generating sales growth. Indian domestic textiles and apparel market is expected to grow 10% CAGR to reach $190 billion by 2026. And the shipping consumer preferences towards branded apparel give us ample scope for growth.

Now let me share the financial and operational highlights of nine months of quarter three of financial ’23. The Company reported revenues of INR519 crores during quarter three financial ’23, as against INR462 crores during quarter three financial ’22, thus registering a growth of 12.4% year-on-year. Operating EBITDA for this quarter was INR130 crores, against INR114 crores in Q3 financial ’22.

The profit after tax stood at INR86.3 crores as compared to INR77.5 crores in Q3 financial ’22. Revenue from operations nine month stood at INR881 crores as against INR742 crores in nine months financial ’22, growing by 19% year-on-year. Operating EBITDA was INR185.4 crores in nine months as against INR157.7 crores as compared to last year, thus it’s growing 18% year-on-year. PAT stood at INR112 crores in nine-month financial ’23 as against INR101 crores in nine-month financial ’22, growing 12% year-on-year.

Our balance sheet remains robust, and we continue to enjoy a net debt-free status. We have a cash balance of INR265 crores, which comprises of cash and bank balance, along with the current and non-current investments. Long-term borrowing is INR5.85 crores as of December ’22 compared to INR8.3 crores of March ’22, which shows our efficiency in serving the debts.

Monte Carlo Fashions continues with this endeavor to build a leading branded apparel company with a well-diversified product portfolio, such as cotton, woolen, kids, and home furnishing. Apart from the cotton segment, we also produce different other garments. We also produce cotton T-shirts in the economic category under the brand Cloak & Decker. The ability to tap various market segments provide the Company with tremendous opportunities for growth in the coming years.

The key strength is wide and growing distribution network with a diversified presence across India. The Company’s product reaches the end users through different distribution channels. The Company currently has 2,670 MBOs plus SIS, 347 EBOs, 788 national chain stores. Concerning online sales, we are looking to focus more on selling through our own portal. However, our clothes are available on various e-commerce websites, such as Ajio, Amazon, Flipkart, Myntra, FirstCry, Jabong and Capsons.

The Company has opened 30 new stores in different regions. Out of which, seven stores were opened in northern region, two in central, and four in eastern region. With this, the total number of EBOs has reached approximately 347 across 20 states and four union territories. The Company maintains its yearly guidance of opening 40 new stores to 45 new stores as informed earlier.

The trade show for September ’23 conducted in September ’22 witnessed healthy traction, helping to build a robust order book for summer. The Company continues to enjoy its strengthened position in cotton and woolen portfolio simultaneously. It is building resilience and strength in its operation. Most of our net revenue is from franchise EBOs and MBOs where we primarily sell on outright basis. Under the business model, there is no significant inventory risk, and we remain insulated from the average hazard sales in a branded apparel business.

I would like to highlight that, to date, we have experienced almost zero bad debts in our business, which stands as a testimony to our robust business model based on zero credit risk policy for the Company.

At Monte Carlo, we tried to provide our customers with finest clothing through product innovations, high quality and the launch of new collections from time to time. Moreover, we continually work towards changing the look and feel of our stores to give our customers the best-in-class experience. We’re optimistic about our future growth and earnings potential. We believe that we have a strong foundation for the future, which we will provide with sustainable and profitable growth for the long term. While our focus will be to maximize revenue growth going forward, our considerable interest is to build profitability by maintaining cost control measures.

To further enhance the recall and the viability — visibility of our brand, we are focused on advertising via different platforms like televisions, online and retail channels, national and regional newspapers, hoardings and billboards displayed at airport and cinema. Monte Carlo maintained its first-mover streak to implement digital solutions in the industry.

We’re also pleased to share that in line with our digital focus to build robust process and to enhance our customer experience, the Company has implemented SAP S/4HANA solution, fashion and vertical business. This is an intelligent ERP providing real-time insights in all areas of business and predictive consumer trend insights. This will enhance the flexibility and agility to deliver end-to-end customer experience, and at the same time to achieve significant bottom-line cost savings.

Now we can open the floor for question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Rahil Shah from Crown Capital. Please go ahead.

Rahil Shah — Crown Capital — Analyst

Hi, sir. Just one question regarding the outlook for the next financial year. In terms of your revenue growth and your EBITDA margin, how do you expect the business to build over for the next year, if you have any views on that?

Sandeep Jain — Executive Director

Thank you. So as far as the forward-looking guidance for next financial year, we normally give once we have the fourth quarter results, because in that case, we do get the inventory at our retail stores, at our warehouse, and also we have a trade show which normally happens in March. So we’ll be in the best position to give the forward-looking guidance and for the EBITDA margin once we have the final results of next quarter.

Rahil Shah — Crown Capital — Analyst

Okay. But overall, as an idea, you do expect the growth you’ve seen so far to continue on the similar lines, if I have to ask?

Sandeep Jain — Executive Director

Definitely, there’s no doubt about that. We see that — we have been — see, last year, we grew around 40%. And this year, we grew — will be around 20%. So we think that this momentum will keep going on because we had a very good winter this year. And also, we expect that the retail inventory should be at last year’s level. So we don’t see any challenges going forward. And I think macros are also now very favorable as compared to last quarter.

Rahil Shah — Crown Capital — Analyst

Okay. Okay. So you do expect the current run rate to continue, which is a positive sign. Yes. Okay. So, thank you and wish you the best.

Sandeep Jain — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Deepan Shankar from Trustline PMS. Please go ahead.

Deepan Shankar — Trustline PMS — Analyst

Good morning, everyone. Thanks a lot for the opportunity, and congratulations for a good set of numbers. Sir, firstly, I wanted to understand. So woolen, do we foresee some more growth extending to Q4 due to extended winter?

Sandeep Jain — Executive Director

See, normally, USS happens in Jan-Feb. So the woolen is definitely — the sale is on. So this sale will be closed by 20th of February. But at the same time, the summer dispatches have started. So the major contribution from the fourth quarter would be from the summer sales.

Deepan Shankar — Trustline PMS — Analyst

Okay. Okay. Okay. And how is the inventory level for woolen products in the market? And also how is the discounting season happening for Q4 for woolen?

Sandeep Jain — Executive Director

Inventory levels, we will only come to know once we have around 15th of March, but we think that it has come down to last year’s level, seeing the sales trend which has happened in January and February. And we are very hopeful that even it can go down before the last year’s level.

Deepan Shankar — Trustline PMS — Analyst

Okay. Okay. Okay. And what is the specific reason for 16% decline in online sales, sir?

Sandeep Jain — Executive Director

See, I think some dispatches have been delayed, and there was one more reason that, actually, one of our customers who was outright buyer. So they shifted to consignment sales. So in that case, some of the order, we have to miss in that case. So that was actually — that affected this quarter. But we are hopeful that we’ll start picking up from the next quarter.

Deepan Shankar — Trustline PMS — Analyst

Okay. Okay. Okay. And we have seen this, advertisement expenses have been higher for Q3 and nine months. So do we expect this INR33 crores, INR36 crores yearly run rate to sustain now on?

Sandeep Jain — Executive Director

See, we were previously doing 3% to 4% advertisement only. So on the COVID here in last two years, we brought it down to 1% to 2% to save our cost. But now we think that to enhance our brand visibility and also to enhance our presence in south and west, we need to do around 3% of advertising. That’s what the Company did in this financial year.

Deepan Shankar — Trustline PMS — Analyst

Okay. Okay. Okay. So, lastly from my side. So this Home Textile and Kids segment growth has been lower. So any strategic reason or do you expect in the coming quarters to pick up?

Sandeep Jain — Executive Director

We guided for 30% growth in Kids and Home Textile segment, and we’ll be achieving that in full financial year.

Deepan Shankar — Trustline PMS — Analyst

Okay. Okay, sir. Thanks a lot, and all the best.

Operator

Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.

Devanshu Bansal — Emkay Global — Analyst

Yes, sir. Thanks for the opportunity and congrats on a good set of numbers. Sir, I wanted to check winters this time around were delayed. So in December, winters were not that cold, as well as Holi is a bit earlier this time around. So you have alluded to this, but I just wanted to understand better. Do you expect higher discounting this time around just because Holi is also a bit earlier?

Sandeep Jain — Executive Director

You’re right that the winters were delayed, so the USS sales have started. And also, there were more discounts as compared to last financial year. But we have a lot of cushion as far as our pricing is concerned. And I think that we have already done the adequate provisioning to safeguard ourselves as far as the margins are concerned.

Devanshu Bansal — Emkay Global — Analyst

So this provisioning impact has already been taken in Q3 or it can come in Q4?

Sandeep Jain — Executive Director

It’s already been taken in Q3.

Devanshu Bansal — Emkay Global — Analyst

Got it, sir. And there were also indications that from an entire company point of view, that there was mixed sort of growth trends during the quarter with October, December being good and November being a little weak. So do you also expect some sort of a postponement of that demand into Q4?

Sandeep Jain — Executive Director

No, no, I didn’t get your questions properly. Can you please repeat it?

Devanshu Bansal — Emkay Global — Analyst

Sir, this time around, the general feedback that we are getting is that October and December was good, but November saw a very sort of weakish growth trend. So I was asking since January has also been a little colder, so do you expect some of that demand to happen in Q4?

Sandeep Jain — Executive Director

Generally, it has been exceedingly — it was exceeding our expectation. You were right that October was strong and December was strong and November was little weak. But I think January, we grew almost more than 30% at our retail stores. So the demand was very good because of delayed winters and extreme winters. So that is why we have been able to lower down our inventory as I said earlier also.

Devanshu Bansal — Emkay Global — Analyst

Correct. Okay. And sir, what is the extent of price hikes that we have taken over the last two, three years? So I just want to understand when higher prices can also impact demand due to higher inflationary environment. So what is your sense on that?

Sandeep Jain — Executive Director

See, as far as this year is concerned, we took a price hike of almost around 8% to 10% in our winter wear category. And in the summer wear category, it was around 5% to 7%. And if we go last year, again, it was 5% to 7%. So it depends on — if you see on average, we increased 5% to 6% prices every year depending upon the raw material and other cost increases. But last year was exceptional where the raw material prices have gone up very steep hike, so we have to increase our price around 10% to sustain our margins.

Devanshu Bansal — Emkay Global — Analyst

Correct. And how is the RM situation now, sir?

Sandeep Jain — Executive Director

Now, I think I’m very glad to share that the price of raw material has come down. So it is going to benefit us going forward in next financial year. As the raw material commodity prices are going down every year, so I think we’re going to benefit between lower cotton prices, lower wool prices.

Devanshu Bansal — Emkay Global — Analyst

Okay. So you don’t intend to sort of take a price cut and whatever the improvements will be there through RM decline that should come in our gross margin. Is it a good understanding?

Sandeep Jain — Executive Director

No, no, no, no. The price once it is absorbed, the price accepted by the consumers, and the consumer [Indecipherable] no point of cutting down the prices. So normally, if it — it goes up 2% to 3% every year because of certain costs are getting up. So we’re not going to cut any prices going forward.

Devanshu Bansal — Emkay Global — Analyst

Last one from my side. I just wanted to understand how does this movement for online channel from outright sales to consignment-based sales impact the unit economics of this time. So I want to understand will — so obviously, however, I guess, working capital will be higher, but we will be making some higher margins. So just wanted to understand this understanding is correct.

Sandeep Jain — Executive Director

There’s nothing to worry about it. It contributes only 4% to 5% of my turnover. That is very, very less. And even — I mean, the channel is just 0.5% of outright sales and 1% isn’t going to make any significant difference as far as our revenue and margins are concerned.

Devanshu Bansal — Emkay Global — Analyst

Okay. But still, sir, in consignment model, how are the unit economics different than outright sales?

Sandeep Jain — Executive Director

Consignment models are a little less, 100 basis points, 150 basis points as compared to outright sales.

Devanshu Bansal — Emkay Global — Analyst

Okay. Okay. Got it, sir. Thanks. And that’s it from my side.

Operator

Thank you. The next question is from the line of Nitya Shah from KamayaKya Asset Management. Please go ahead.

Nitya Shah — KamayaKya Asset Management — Analyst

Yeah. Hi, sir. Congrats on a good set of numbers. So I wanted to understand, in the past we have hired Andre Russell, the cricketer, as part of our advertising campaigns, and now you spoke about the fact that the margins going forward will also improve due to lower raw material costs. So I just want to understand, are you planning to increase your advertisement expenditures as a percentage of revenue? And so, what are your advertising plans in the future? Do you plan to hire any more celebrities for better brand awareness and so on? So I just wanted some guidance on that.

Sandeep Jain — Executive Director

Yeah, sure. We would like to keep our margin — our advertising guidance for 3% as far as revenues are concerned. And yes, we are thinking of including a celebrity also in our ad campaigns going forward. So when that will happen, we’ll definitely inform in our next conference call.

Nitya Shah — KamayaKya Asset Management — Analyst

Great, sir. All the best for the future quarters.

Sandeep Jain — Executive Director

Yeah. Thank you.

Operator

Thank you. The next question is from the line of Vikas Khemani from Carnelian Asset Advisors. Please go ahead.

Vikas Khemani — Carnelian Asset Advisors — Analyst

Hi, Sandeep. How are you?

Sandeep Jain — Executive Director

Yeah, good.

Vikas Khemani — Carnelian Asset Advisors — Analyst

Great. Congratulations on a good number. Two questions, Sandeep. One is that, could you share what’s your store opening target next year? Because I think this year you already exceeded what guidance you gave, so how are you thinking about next year or maybe next couple of years? It’s good to hear about that. That could be a good extra growth as we are still very, very underpenetrated in the last part of India. So some more concrete guidance on that would help.

Sandeep Jain — Executive Director

Vikas, your voice is breaking, but as I understood the question clearly that you wanted to ask how many stores opening plans we have for the next financial year and strategy also. See, I think, this year, we opened around 40 stores to 45 stores, which is — we are on the track of achieving that guidance. So next year, we are increasing our guidance to 50 stores to 60 stores as far as store openings are concerned. And also, we are putting a lot of focus on south and west. And we assume that at least 20% stores will come in south and west out of the new store openings.

Vikas Khemani — Carnelian Asset Advisors — Analyst

Right. Right. Right. And secondly, we have now a lot of cash, like sitting in our books, which, obviously, will drag on ROE. And you’ve been with almost INR120 crores, INR130 crores cash at the year again now. So any plan to do any buyback, dividend? Because you — last you did was only in ’19. So it’s been like three, four years now. So what’s the plan of cash which is there on the balance sheet?

Sandeep Jain — Executive Director

See, as I think we have discussed in our last financial call also that this year CapEx will be huge because we are putting up a mink blanket plant and quilt plant at G&K. So some of the cash will be — because not everything we are taking on debt. So as far as land and building is concerned, as with no interest prevention scheme on there, so we are putting our own money in landed building [Speech Overlap]. So that would — wholly-owned subsidiary. So that would be around INR40 crores, INR50 crores. So some of the cash would be used over there.

And yes, definitely, we are a dividend-paying company and paying handsome dividend every year. Dividend will be shared with the shareholders. And also, if there is any plan for any buyback and anything, that all can be discussed in the Board meeting, but that has not discussed yet. So if there’s any plan, definitely we’ll let exchanges know about that.

Raj Kapoor Sharma — Chief Financial Officer

In due course of time, we will inform you.

Vikas Khemani — Carnelian Asset Advisors — Analyst

Okay, Sandeep. Thanks.

Operator

Thank you. We have the next question from the line of Danesh Mistry from Investor First Advisors. Please go ahead.

Danesh Mistry — Investor First Advisors — Analyst

Hello, sir. Hi, good afternoon and thank you for taking the call, and congratulations on good numbers. It’s heartening to see that your gross margin has been improving as you had guided in the beginning of the year. Sir, I have just a couple of questions. The first is on your other expenses. If you can just help us understand what has driven these other expenses this time around? Because remember, last year, same quarter, Q3 FY ’22, we had the CSR expenses in the base. So this — and last quarter, you had said that now you are amortizing some of these expenses. So what was the reason behind this 25% increase in other expenses, sir? That is question number one.

Sandeep Jain — Executive Director

I think in other expenses, if you see the major cost is advertising, so — which was a…

Danesh Mistry — Investor First Advisors — Analyst

I’m saying without advertising. So advertising has gone up from INR8 crores to INR15 crores.

Sandeep Jain — Executive Director

To INR28 crores, yes.

Danesh Mistry — Investor First Advisors — Analyst

And — no. I’m saying — for the quarter, I’m saying, sir. But if you…

Sandeep Jain — Executive Director

I think all other expenses are normal. It’s advertising cost, which has likely pulled the cost higher. It was [Technical Issues]. And business promotion expenses also have gone up in nine months as compared to last financial year. Otherwise, all other expenses are in the line, 7%, 6% over last year and 16.2% is this year. So it’s in line.

Danesh Mistry — Investor First Advisors — Analyst

Okay. No, I was just trying to understand on a quarterly basis. If you see Slide 10 of your presentation, there you’ve actually said that in Q3 FY ’22 other expenses of INR47 crores. They are now close to INR57 crores. So is there any one-off in that as well is what I’m trying to understand, sir, in the quarterly number.

Sandeep Jain — Executive Director

So, if we see the percentage-wise, it is 10.16% and 10.9%. So it has gone up accordingly [Speech Overlap].

Danesh Mistry — Investor First Advisors — Analyst

All right. Okay, sir. Understood.

Sandeep Jain — Executive Director

[Speech Overlap] percentage terms basically.

Danesh Mistry — Investor First Advisors — Analyst

Okay, sir. Understood. And sir, in terms of this, you mentioned that Jan, you had a good sale of your inventory given that you had some winter spillover. So is it possible for you to share the current debt number that we have, sir, on our books, the gross debt?

Sandeep Jain — Executive Director

Long-term debt [Speech Overlap].

Danesh Mistry — Investor First Advisors — Analyst

Will it come down eventualy?

Sandeep Jain — Executive Director

The long-term debt you are asking?

Danesh Mistry — Investor First Advisors — Analyst

Both sir, long term as well as the short-term working capital, sir.

Sandeep Jain — Executive Director

Yeah. So, long-term debt is just INR5.8 crores only. And the short-term debt is INR200 crores.

Danesh Mistry — Investor First Advisors — Analyst

INR200 crores. Okay. Got it. And in September, sir, what was this figure?

Sandeep Jain — Executive Director

I just — just wait for a moment.

Danesh Mistry — Investor First Advisors — Analyst

Long term and short term?

Raj Kapoor Sharma — Chief Financial Officer

Sir, long term, it was only INR7 crores.

Sandeep Jain — Executive Director

And how many was short term?

Raj Kapoor Sharma — Chief Financial Officer

Yes. And short term was approximately INR150 crores.

Sandeep Jain — Executive Director

INR150 crores in September.

Danesh Mistry — Investor First Advisors — Analyst

In September. So our debt paydown will still happen in the short term. Is it this quarter?

Sandeep Jain — Executive Director

Yeah. Working capital likely, we are using, basically, this becomes very heavy in September and December quarter. It comes down in the March quarter. So we would see that in this quarter, it would come down to INR50 crores short-term debt.

Danesh Mistry — Investor First Advisors — Analyst

Got it, sir. Understood. Sir, right now, sir, what is the cash on the books?

Sandeep Jain — Executive Director

INR265 crores.

Danesh Mistry — Investor First Advisors — Analyst

INR265 crores. Okay, sir. Thank you very much, sir. Thank you and wish you the very best of luck.

Sandeep Jain — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Govindlal Gilada, an individual investor. Please go ahead.

Govindlal Gilada — Individual Investor — Analyst

Hello?

Sandeep Jain — Executive Director

Hello.

Govindlal Gilada — Individual Investor — Analyst

Yeah. Thanks for the opportunity. I got only one question. This finance cost has gone up substantially. Any specific reason, sir?

Sandeep Jain — Executive Director

Pardon?

Raj Kapoor Sharma — Chief Financial Officer

Finance cost is because of the ROI and…

Sandeep Jain — Executive Director

Finance cost is because of two reasons. One is the interest rates have gone up. And secondly, utilization has gone up as the sales have gone up.

Govindlal Gilada — Individual Investor — Analyst

Interest rate maybe substantially gone up. What is…

Operator

Sorry to interrupt, Mr. Gilada. The line for you is not very clear. I request you to please use the handset.

Sandeep Jain — Executive Director

The utilization has gone up. And secondly, the interest rate was also higher as compared to last year. So that is why the finance costs have gone up. These are the only two reasons for this.

Govindlal Gilada — Individual Investor — Analyst

Okay. Thank you. Thank you.

Sandeep Jain — Executive Director

And if you see the percentage wise, it is just 1.55% last year. It is 2.16% this year.

Govindlal Gilada — Individual Investor — Analyst

No, H2 it has gone up 128% from INR4 crores to INR10 crores.

Sandeep Jain — Executive Director

Yeah. That’s the reason the interest rate hike and a more utilization as compared to last year is the reason.

Govindlal Gilada — Individual Investor — Analyst

Okay. Thanks, So this run rate will continue, sir?

Sandeep Jain — Executive Director

No, I think the interest rates have stabilized now, and I think it will come down going forward. So definitely, it will come down. And also, I think utilization will also come down.

Govindlal Gilada — Individual Investor — Analyst

But on our — debt is almost something around INR200 crores. And INR200 crores, quarterly interest INR10 crores is — I think, working capital also, we are using know, I don’t know.

Sandeep Jain — Executive Director

See, what we can do is we can separately share with you the cost of interest and also how much financial charges are extra as compared to last year depending on these two factors.

Govindlal Gilada — Individual Investor — Analyst

Okay, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Dhiral from PhilipCapital PCG. Please go ahead.

Dhiral Shah — PhillipCapital PCG — Analyst

Yeah. Good morning, sir. Thanks for the opportunity. Sir, as you said that next year you are guiding to increase 50, 60 new stores. So, however, you’re still planning to open only 20% in the south and west region. So on the overall basis, our south and west will still contribute minimum to the overall revenue?

Sandeep Jain — Executive Director

If you see the contribution from south is just 3% and 4%. And we are adding 20% more store sales compared to — 20% of total stores. So you think that — this is how we are penetrating more in south and west. If I see percentage-wise, it should be only 5% of the total stores, which should open in south and west. But to increase our presence and to penetrate further, we are making a 20% of the total stores open in south and west. So that definitely shows the intention of the Company, how they want to grow in south and west.

Dhiral Shah — PhillipCapital PCG — Analyst

But, sir, why then at a slow pace, just 20%? And why not, sir, maybe at a higher pace because our presence in that region is very miniscule?

Sandeep Jain — Executive Director

Sir, I think you’re not getting my point. What I’m saying is that right now, the sales contribution from south and west is just 7%. And the sales contribution from north and east is 80% — 93%. So when I say 20%, it means I’m — 2.5 times I’m doing the sales — try to do sales in south and west as compared to northern regions. That is why I’m saying 20% of the stores — new store will be opened up in those regions.

Dhiral Shah — PhillipCapital PCG — Analyst

Okay. So sir, let’s say next three years to five years, sir, what kind of south and west revenue it can contribute to the overall pie? What is our target for that?

Sandeep Jain — Executive Director

See, I think I can say that — last year, the contribution was around 5.95%. And this year, it is going to be, I think, around 8%. And going forward, in the next three years, we should need to touch, I think, around 15% of our turnover from south and west.

Raj Kapoor Sharma — Chief Financial Officer

15% to 20%.

Dhiral Shah — PhillipCapital PCG — Analyst

Okay. Okay. And sir, as you’re guiding to open 50, 60 stores from 40, 45 stores, sir, what gives you this confidence to grow at very higher pace? So is there any indication for that, sir? Any…

Sandeep Jain — Executive Director

I think it’s only that we see the potential for Monte Carlo to grow in some of the areas where we are not present. And definitely, as we said earlier, there is south and west where we were opening just two stores to three stores, we are opening now 10 stores to 15 stores. So that is giving us the confidence to open more goes in those areas where we are doing well, and we are getting good response. So that is why I would like to explore those areas, where we can be present more aggressively.

Dhiral Shah — PhillipCapital PCG — Analyst

Okay. Okay. And sir, what will be the capex guidance for FY ’24 and maybe the remaining part of FY ’23?

Sandeep Jain — Executive Director

Capex, I think as you already know that we have a mink blanket manufacturing plant which is coming up in this financial year and also some of the expansion will happen in next year. So we think that going forward, we would have a capex of INR125 crores including the normal capex of Monte Carlo and the additional capex of mink blanket plant.

Dhiral Shah — PhillipCapital PCG — Analyst

Okay. Okay. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Yeah. Thanks for the opportunity. Sir, I had some questions. Do we have any debt stock?

Sandeep Jain — Executive Director

We don’t carry debt stock. We normally get rid of inventory by 31st of March. And whatever stock is there, either we sell it to some of the people at a very, very discounted price or we write it off.

Akshay Kothari — Envision Capital — Analyst

So when selling it for discounted price, won’t that dilute our brand?

Sandeep Jain — Executive Director

No, no. It’s like we cut our labels and we give it to some of the people who sell the lots. So that is just around 10% to 12% of the MRP in that case, when we sell it to the people who are selling at their own outlets. And there are some outlets in northern region also where we sell out this merchandise. And we make sure that it doesn’t disturb my existing channels of MBOs and EBOs.

Akshay Kothari — Envision Capital — Analyst

Okay. Some other brands also do that and aware of these factors. But people are generally aware this Monte Carlo [Foreign Speech] sale. So, generally it happens once in a year. So, people would wait for that sale, right?

Sandeep Jain — Executive Director

Yes.

Akshay Kothari — Envision Capital — Analyst

So isn’t it affecting our sales in the prior period just before the sale?

Sandeep Jain — Executive Director

There are customers who don’t want to — who don’t see that when the sale is coming. So they have the high disposable income. So they go and purchase any time whenever they want. So there are those kind of customers who comes in October, November and December. Then definitely, there is our value customer who thinks that he only wants to purchase when the prices are less. So there are two kinds of customers, and we are dealing with — we are happy to sell to both kind of customers, and it’s for all the brands. It’s not for Monte Carlo. It’s a worldwide phenomena.

Akshay Kothari — Envision Capital — Analyst

Okay. Thanks. And sir, how many sales seasons do we have in a year?

Sandeep Jain — Executive Director

We have two sales periods. One is for summer USS, and second is for winter USS.

Akshay Kothari — Envision Capital — Analyst

Okay. And sir…

Sandeep Jain — Executive Director

There are no in between mid-sales. We don’t do any mid-summer on mid-winter sales. It’s only two sales.

Akshay Kothari — Envision Capital — Analyst

Which months would be those?

Sandeep Jain — Executive Director

Normally, summer sales happen in July, August and winter sales happen in Jan, Feb. Jan and 15th Feb, till 15th Feb.

Akshay Kothari — Envision Capital — Analyst

Okay. And so, do — can we expect any improvement in working capital cycle?

Sandeep Jain — Executive Director

Working capital will remain like that only. We are in such a business where we have heavy third quarter and so working capital remains like that. It comes down in fourth quarter.

Akshay Kothari — Envision Capital — Analyst

And sir, we are not in to manmade fibers, right?

Sandeep Jain — Executive Director

We do use manmade fiber.

Akshay Kothari — Envision Capital — Analyst

So when you are selling key cotton, so it is not pure cotton which we are selling. It must be a mix, right?

Sandeep Jain — Executive Director

That’s a mix. There are garments who are made of cotton and polyester also, and there are garments who are made only of cotton. So we use both kind of fabrics.

Akshay Kothari — Envision Capital — Analyst

Okay. Sir, your advertisement expenses, where are we actually advertising? Is it some ROI-based advertisement?

Sandeep Jain — Executive Director

Definitely, it’s ROI-based advertising. We are doing ATL and BTL activities, above the line and below the line also. We are present in digital. We are present in TV also. We are present in theater also. We are present in hoardings also and outdoor media. We’re also doing print advertising. So all kind of channels we are exploring and also some OTT apps and other apps where we are making our presence felt.

Akshay Kothari — Envision Capital — Analyst

I visited one of your stores in Borivali West. For the price point which we are offering, aspirational value wasn’t there. Also the store was not — there was no very good response in terms of — I visited on a Sunday. So I understand it is just starting for us in west and south region. But for the price point which you are offering, some of the very premium foreign brands are also offering. So what is the aspirational value which we are trying to create?

Sandeep Jain — Executive Director

I think the simple answer is that if my customers are accepting the price, then only we are able to sell on MRPs in all the regions. But I’m not sure about how you perceive the aspirational value of Monte Carlo when you visit the stores. But normally, as I said earlier, that in western region, we don’t have that much of a presence, so that is why the customers might not even recognize Monte Carlo as high a brand as it’s being recognized in northern and eastern region. So that might be a difference.

Akshay Kothari — Envision Capital — Analyst

Yeah. That’s what I’m trying to ask you. In western region, there was — for the same price point, I can go for — so my only point comes over here is, are we [Technical Issues] sort of strategy to cater to west and southern markets?

Sandeep Jain — Executive Director

See, we are competing with all the brands as far as our summer range is concerned. We are very, very competitive. I think you might have taken for buying the winter themes, which is little expensive than others. But as far as summer products are concerned, we are very, very competitive. If you see all the shirts, trousers, denims and all, they’re at least competitively priced with all the Madura brands, Raymond brands or Arvind brands. You can compare our prices with them.

And definitely, in winter wear brand also, if you compare our pure wool sweater with their pure wool sweater of Uniqlo or H&M, our prices are more competitive. But if you compare my pure wool sweater with wool sweater, then definitely we are a little expensive.

Akshay Kothari — Envision Capital — Analyst

Understood. Okay. Yeah. That’s it from my side and all the best. Thank you.

Sandeep Jain — Executive Director

Thank you.

Operator

Thank you. The next question — that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Sandeep Jain — Executive Director

Yeah. Thank you very much for — so if you have any queries or any questions, you can please write to our IR agency, Dickenson and also our CFO, Mr. R. K. Sharma, for further clarifications or any of the queries you have asked. Thank you very much.

Operator

[Operator Closing Remarks]