Monte Carlo Fashions Ltd (MONTECARLO) Q2 FY23 Earnings Concall Transcript

Monte Carlo Fashions Ltd (NSE: MONTECARLO) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Sandeep Jain — Executive Director

Rishabh Oswal — Executive Director

Analysts:

Jigisha Kapoor — Emkay Global Financial Services — Analyst

Unidentified Participant — — Analyst

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Nikhil Jain — Galaxy International — Analyst

Danesh Mistry — First Advisors — Analyst

Sonal Minhas — Prescient Investment Management — Analyst

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Riya Mehta — Aequitas Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q2 FY ’23 Results Conference Call of Monte Carlo Fashions Limited, hosted by Emkay Global Financial Services. [Operator Instructions]

I now hand the conference over to Ms. Jigisha Kapoor from Emkay Global Financial Services. Thank you and over to you.

Jigisha Kapoor — Emkay Global Financial Services — Analyst

Thank you. Good morning, everyone. On behalf of Emkay Global, I would like to welcome you all to Q2 and H1 FY ’23 post-results conference call of Monte Carlo Fashions Limited.

From the company, we have with us the senior management, including Mr. Dinesh Gogna, Director; Mr. Sandeep Jain, Executive Director; Mr. Rishabh Oswal, Executive Director; and Mr. R. K. Sharma, CFO of the company.

I would now like to hand over the call to Mr. Sandeep Jain for initial comments. Thank you, and over to you, sir.

Sandeep Jain — Executive Director

Very good evening, everyone, and thank you for joining us for this earnings call of Monte Carlo Fashions to discuss the financial and operating performance for half yearly and quarterly 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. 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 Investor Section of the company’s website.

Now, let me share the financial and operational highlights of H1 and Q2 of financial ’23. The company reported revenues of INR248 crore during quarter two financial ’23 as in years, INR238 crore. That’s registering a growth of 4.3% year-on year. Revenue from online channel sale is INR8.2 crore for this quarter. Operating EBITDA for this quarter was INR50 crore, against INR52.7 crores in Q2 financial ’22. The PAT stood at INR30.3 crore as compared to INR33.9 crore in Q2 financial ’22.

Revenue from operation H1 financial ’23 stood at INR361 crore as against INR280 crore in H1 financial ’22, thus, growing by a 29% year-on-year. Online sales for the first half stood at INR12.2 crore. Operating EBITDA was INR55.2 crore in H1 financial ’23 as against INR44 crore in H1 financial ’22. Thus, it is growing 25% year-on-year. PAT stood at INR26.4 crore as against INR23.7 crore in H1 financial ’22, growing by 11% year-on-year.

Our balance sheet remains robust, and we continue to enjoy a net debt free status. We have a cash balance of INR277 crores, which comprises cash and bank balances along with the current and non-current investments.

Long-term borrowing is INR6.7 crore as of September, ’22, compared to INR8.3 crore as of September, ’22, which shows our efficiency in serving complete [Indecipherable]. Monte Carlo Fashions continues with its endeavor to build our 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 and cotton branded t-shirts in the economy category, under the brand program [Indecipherable].

The ability to tap various market segment provides the company the tremendous opportunity for growth in the coming years. Our key strenght is a wide and growing distribution network with a diversified presence across India.

The company’s pro rata regionally and use through different distribution channels, the company currently has 2,252 MBOs plus SIS, and 336 EBOs, 687 national chain stores. Concerning online sales, we’re looking to focus more on selling through our own portal. However, our growth are also available on various e-commerce websites, such as Ajio, Amazon, Flipkart, Myntra, First Cry, Jabong and Kapsons.

The company has opened 14 new stores in different regions, and the same time closed a few non-performance were also. In the half yearly, itself for the company achieved more than 50% of the target of opening 30 EBOs in financial year. Most of our net revenue is from franchises, EBOs and MBOs, where we primarily sell on pre-order or outright basis.

Under this business model, there is no significant inventories and we remain insulated from the average hazard sales in predator 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’d like to provide our customers with finance floating through product innovation, high-quality and the launch of new fashion from time-to-time. Moreover, we continuously work towards changing the look and feel of our stores to give our customers the best-in-class experience. We are optimistic about future growth and earning potential. We believe that we were strong foundation for the future, which we can provide us with sustainable and profitable growth for the longer-term. But our focus will be to maximize revenue growth going forward. Our considerable interest is to build profitability by maintaining post control measures.

Now we can open the floor for the question-and-answer session. If you have any of your queries post this earning call, you may also write us at investor@montecarlocorporate.com or contact us to Dickenson World, our investor relation advisor. Thank you very much.

Questions and Answers:

 

Operator

Thank you. We will now begin the question-and -answer session. [Operator Instructions] We have the first question from the line of Rahul Shah, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Thank you for the opportunity. Sir, I would like to know, how your brand Rock It performed in this quarter?

Sandeep Jain — Executive Director

Okay. I’ll ask Mr. Rishabh to [Technical Issues] on this.

Rishabh Oswal — Executive Director

So, hi, good morning. So, the brand Rock It is currently only available online. Coming forward in this commerce, we will be available in offline. And in this financial year, we’ll be clocking around INR10 crores to INR15 crores of turnover from the plan, — which was INR5 crores last year.

Unidentified Participant — — Analyst

Okay. And sir, my next question is, what is the current status of the new Jammu and Kashmir project?

Rishabh Oswal — Executive Director

See, the current status is that — I think, we’ll be hopefully able to register the land in this November, itself as most of the documents have been processed and change of land-use every — change of land-use documents has been the government. So most probably, the land will be register in our name in November itself, and we have already hired a consultant for architect and BMC consultants, and we also hired two people. So, hopefully, we’ll be able to start the process by next month.

Unidentified Participant — — Analyst

You are telling that the line will be — in your point — In your — land will be acquired by next one or two months?

Rishabh Oswal — Executive Director

No, land will be acquired in this month itself.

Unidentified Participant — — Analyst

Okay. And when can we expect the operations?

Rishabh Oswal — Executive Director

It takes almost nine months to 12 months to have the production on the floor. So, we can expect this to have a production in third quarter of next financial year.

Unidentified Participant — — Analyst

Thank you. Okay. So, probably around Diwali?

Rishabh Oswal — Executive Director

Around that time, positively.

Unidentified Participant — — Analyst

Okay. Thank you so much.

Operator

Thank you. We have the next question from the line of Viraj Parekh from Carnelian. Please go ahead.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Good morning, sir. So, couple of questions from my side. You doubled that online sales to [Technical Issues] 19[Phonetic] crores from 8.2 [Phonetic] year-on-year, even the H1 figures have almost doubled. So, you’re saying that is Rock It is sold online — solely online. So, just wanted to understand, whether these sales were coming from our online partners from our own website? Like, how you been able to achieve double the number of online sales?

The second question is that, like opened — you’ll be opened more than 30 new stores this FY net of closing or do we stick to our annual guidance of opening 30 stores this financial year?

Sandeep Jain — Executive Director

So, I will come to the second question first. We have given a guidance of 30 stores in the beginning of this year for this financial year. So the net store addition — now, we are revising our guidance. I’m happy to announce that, we’ll be opening around 40 to 45 more in this financial year. And the net store addition it should be between 40 to 45 in this financial year as compared to last year.

And again, I’ll ask Mr. Rishabh to comment on the online sales and the Rock It sales for this financial.

Rishabh Oswal — Executive Director

Yeah. Hi, good morning. So, the first question, if I heard it right, our contribution of our own website montecarlo.in, is around 15% to 20% of the total online sales, the other 80% happens through different portals under different models. And Rock It, right now is selling online, but it is not a major contributor to the sales online. It is going forward when I gave the guidance of [Technical Issues]. So, when I give the guidance of INR10 crore to INR15 crores, majority of it will come through offline distribution channels going forward in the upcoming summer season.

So, the contribution of Rock It and online sale is not that much, majority of it is through Monte Carlo brand.

Sandeep Jain — Executive Director

See, we took our decision to change the strategy in favor of offline channel as we — and we have discussed with the people and the distributors, so it makes sense for us to launched Rock It in a distribution channel to have the more growth in this brand.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Okay. Just a follow-up, your first question — I mean, so, it’s [Technical Issues] 15% to 20%, so are we seeing more — more demand from the other ecommerce partners we have in online sales? And the second question follow-up is that, sir, you are revising the guidance to 40, 45 stores. So, we will be opening next 40, 45 store, right, after closing?

Sandeep Jain — Executive Director

Yes, next 40 to 45 stores in this financial year as compared to earlier guidance of 30.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Can I have answer the first — one first question.

Sandeep Jain — Executive Director

Your voice is not audible, can you please repeat the first question, again.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Sure. Is it audible now?

Sandeep Jain — Executive Director

Yes.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Yes. So, what I’m asking you is that since our own website is contributing close to 15%, 20% of online sales, so, are we seeing more traction in terms of demand from the ecommerce partners we have in terms of online sales?

Sandeep Jain — Executive Director

Yes, there is higher demand from our ecommerce partners. And also, we’ve — we are now focusing more on outright sales to these partners, so like Amazon and Flipkart, they started buying outright production, mostly there is no discount sharing, no return from the company side. So we have testing more of that methods and that is more profitable and — profitable for us.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

All right. Okay. Can I just squeeze in a last question. Is it fine?

Sandeep Jain — Executive Director

Yes. Sure.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Sir, I’ve seen that we’ve doubled our ad expenses from close to 2% of revenue in H1 FY ’22 to close to 5% of revenue in H1 FY ’23. And in your presentation, you highlighted some where we are spending in which media into which channel, we are doing advertisement. So, what is the strategy in terms of advertising? Are we targeting more digital? Are we targeting more media? Can you help me in which engine advertising being done? Is it being done in the Northern region, Eastern region where we have a substantial good presence? Or is it being done in the South or Central region, where the presence little bit less compared to North?

Sandeep Jain — Executive Director

The first question you asked about the how we doubled in this quarter as compared to last financial year. See, on the year basis, I think we’ll stick to our guidance of 2% to 3% of budget to the revenues as far as advertising spend is concerned, and it is spread across all the geographies. It’s not limited to Northern, Eastern or Central region. It is spread to Southern and Western also because we have took the cinemas all across India, and the digital is actually — digital has already suppressed through various websites and various channels all across India. So, I’ll ask Rishabh Oswal to contribute in this particular segment.

Rishabh Oswal — Executive Director

So as far as our strategy is concerned towards advertisement, as Sandeep said, we have spread across geographies, our more focus is on online. We’ve reduced our spend to almost negligible when it comes to TV advertisement, but we have tied up with AirAsia. We have 10 aircraft on board with Monte Carlo advertisement inside the aircraft. We’ve also taken of Sports in Hotstar during the current World Cup that is happening. And so, yes, we’ve increased our — but we are trying to be more effective with the spend that we’re doing and we’re doing offline and TV advertisements in favor of advertisements like in theater, in aircraft, online OTT, so things like this. But the overall spend will stick to the guidance.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Of 2% to 3%?

Rishabh Oswal — Executive Director

2% to 3%, yes.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Okay. All right. Thanks. That will be helpful. Just last question, if you could help me with the volume numbers of H1 FY ’22 and H1 FY ’23 segment wise of how we’ve been able to grow, that would be helpful.

Sandeep Jain — Executive Director

I can give you a broad figure of woolen, within cotton, within textile. So, woolen risen the volume for this financial first half was 4.60,000 lakh and which was at 383,000 lakh in last financial year in last half excellent. And in cotton segment, the volume grew to 26.65 lakh pieces as compared to 22.67 lakh pieces last financial year. In textile, it is 582,000 lakh pieces as compared to 513,000 pieces in last financial year. So overall, the growth is approximately if see in quantities, it is for 4 lakh — 444,000 as compared to 42 lakh pieces.

Viraj Parekh — Carnelian Asset Advisors Pvt Ltd — Analyst

Okay. Thank you, sir. All the best for future. That’s all from my side.

Sandeep Jain — Executive Director

Yes. Thank you.

Operator

Thank you. We have the next question from the line of Nikhil Jain from Galaxy International. Please go ahead.

Nikhil Jain — Galaxy International — Analyst

Yes. Thank you for the opportunity. I just wanted to actually check in this quarter, we had only a 5% mix growth and on top of that, the margins have also declined. And this is in spite of the fact that we have passed on all the price hike as communicated in earlier call. So, I just wanted to know like what is actually happening. And we thought that and we — if you look at the other companies in the discretionary space, I think they have shown better growth. So, I just wanted to have your thoughts on this.

Sandeep Jain — Executive Director

Thank you, Nikhil. Basically, as you know, when we give our guidance, we always give our annual guidance, we never give our quarterly guidance. In quarterly guidance, there are regional variations season to season. Sometimes there are weddings, which are late, sometime dispatches are happening, as far as seasonality is concerned. So, there are variations in quarter-to-quarter, but overall, we remain committed to the guidance, which we have given. And the margin decline the main reason was advertising costs have come into this quarter, but the overall guidance will remain same, so it will get compensated in the next two quarters. So as far as, if you see clearly that there is a INR10 crore jump in advertising costs in this quarter as compared to last quarter, but that will again we believe in the coming quarters. So, the overall spend will remain at 2% to 3%. And there is a drop in other income also on the extent of INR4 crores. So, we’ll have some benefit also as now there bond yield has increased. So we will get that benefit in the coming two quarters. So overall, I don’t see any issues anywhere as far as margins are concerned, but yes, there are variations from one quarter to another quarter, but overall, for the year, we remain optimistic and positive.

Nikhil Jain — Galaxy International — Analyst

Okay, and thank you, sir. Just one more additional question. So, I believe we have informed that for let’s say for the next winter season, so this is now actually started. So, you have thoughts on all the price hikes, and you have seen robust growth, right? So, but actually in the next two quarters, we will be make up for the INR10 crores growth in the margin, right?

Sandeep Jain — Executive Director

We are finding very difficult to understand your question. Please speak slowly and clearly again. I think the voice is not clear. Can you please repeat it?

Nikhil Jain — Galaxy International — Analyst

Yes, I’m sorry. I just wanted to get your perspective on the next two quarters given that earlier, we have said that we have passed on all the price hikes in the commodities and also, we had a robust spring season coming in. So, we will make up for our guidance in the next two quarters both on sales as well as the margins?

Sandeep Jain — Executive Director

Surely. We stay committed on our guidance, which we gave earlier. And when we give annual guidance, we take into account all the price hikes. And also, the discounts, which we give in the seasons. So, I think we remain committed to the guidance, which we had given earlier. And as far as around prices increase is concerned, that is already being positive going to the customer, but whatever raw material prices have come down now in this last two months, so that benefit will come in the next financial year.

Nikhil Jain — Galaxy International — Analyst

Okay. Very good. Thank you.

Operator

Thank you. We have the next question from the line of Zaki Nasser, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Operator

Mr. Zaki, your voice is muted.

Unidentified Participant — — Analyst

Is it audible now?

Operator

Yes.

Unidentified Participant — — Analyst

Sir. Good morning, and commendable performance for the quarter Monte Carlo. Sandeep, the thing is that in retail apparel, if you see the trend for the company is also, there has been a slight shift between Q3 and Q2 this year in terms of the season going up. So, what is your opinion will happen to Monte Carlo because our best season is Q3, so would it remains the same? That is my question number one. My question number two is, you have made forays into South, how is your feel on that market, sir? Thank you.

Sandeep Jain — Executive Director

The first question is the quarter three you are asking over quarter two, am I right?

Unidentified Participant — — Analyst

Yes, sir. There is a bit of overlap between the two seasons this year, so your opinion on that, sir.

Sandeep Jain — Executive Director

What happens is there in company like us, because when there is a change in the wedding season, change in the festivals, so there are some supply happening in September, some supplies are happening in October. So, there are quarter-to-quarter variations. But we are not worried about that as the guidance, which we gave is basically on a full-year basis. So, the sale, which have not have happened in September quarter will happen in the October quarter. So that is one area. And what was the second question?

Unidentified Participant — — Analyst

Sir, your feel on the Southern markets. You’ve [Indecipherable]

Sandeep Jain — Executive Director

In Southern market, I think as we committed earlier also that will be growing around 35% to 40% as compared to last financial year and we are well on track. We have opened four outlets also, two in Hyderabad, one in Chennai and one in Bangalore and that is giving us — even the response is excellent, and we have plan to open another three outlets in South and also two outlets in West also. So overall, we’ll be opening around 20% of the total outlets that will open in pan India in South and West. That gives us the confidence we’re going forward. The guidance which we gave you 35% to 40% will be achievable.

Unidentified Participant — — Analyst

Thank you, sir. And best wishes, sir.

Operator

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

Danesh Mistry — First Advisors — Analyst

Hello. Hi, sir. Good afternoon and thank you for taking my question, and congratulations. I had a couple of questions. The first one was that you’ve increased your guidance on the stores from 40 to 45, that’s quite a large jump. So, do you have visibility of opening of the stores in terms of locking in the leases and all? And second, what has driven your sudden positivity around the store openings, sir? That’s question number one.

Sandeep Jain — Executive Director

Okay. See, the reason for going to 245 stores from 310 stores is depending upon the market conditions. We find that the market is actually giving us — there is a demand of opening EBOs in some of the markets where we were not present. So that gives us the confidence that definitely the number can be increased to 45 as compared to 30 as compared to last year. And we will become conservative also in our guidance in the beginning of the year because we just — the COVID was ended. So, the guidance was very conservative, but I think now it has given us the confidence that we can increase the guidance to 245 stores.

Danesh Mistry — First Advisors — Analyst

Got it. Got it. And these are again where in the North or in the South, or is it equally spread?

Sandeep Jain — Executive Director

See, as I said earlier, that we’ll be opening 20% of the stores, new stores in Southern and Western market [Indecipherable] different we’ll be opening in the rest of the India.

Danesh Mistry — First Advisors — Analyst

Got it. Okay. Thank you very much for that. I had just another question. See, if I compare your inventory position as of September ’21 or was the September ’22, of course, I know that quarter three is a strong — is the generally the strong quarter for us. So, we have to stock up on inventory. But as inventory has grown about 30-odd percent Y-o-Y on a balance sheet basis so, is it safe to assume that we can see that kind of throughput in sales in quarter three, evident into period of that?

Sandeep Jain — Executive Director

Definitely. When a company is giving guidance of 20% to 25%, definitely there could be more inventory in the system for HFCs. So, this is how this inventory has built up.

Danesh Mistry — First Advisors — Analyst

Got it. Got it. And lastly, if I remember correctly, last year in quarter three, we had a corporate the CSR expenses. Do we have at this time as well?

Sandeep Jain — Executive Director

No, we book it every quarter, the rules have [Indecipherable] This quarter, we have booked it.

Danesh Mistry — First Advisors — Analyst

Got it. And that’s why your other expenses are up?

Sandeep Jain — Executive Director

Yes, that is why other expenses are up, because of CSR addition of months here in this period.

Danesh Mistry — First Advisors — Analyst

Understood. So, we see it was INR1 crore every quarter of CSR, is that a current assumption?

Sandeep Jain — Executive Director

It is first half, the first half is INR1 crore and crore again [Indecipherable]

Danesh Mistry — First Advisors — Analyst

Got it. Okay. Thank you very much, and wish you the very best of luck. Thank you.

Operator

Thank you. [Operator Instruction] We have the next question from the line of Sonal Minhas from Prescient Investment Management. Please go ahead.

Sonal Minhas — Prescient Investment Management — Analyst

Hi, am I audible?

Sandeep Jain — Executive Director

Yes, you are audible.

Sonal Minhas — Prescient Investment Management — Analyst

Sir, thank you for taking my question. I wanted to understand like the effort the company has made in terms of reducing the debtor days and inventory by and large. If you could basically just share what has happened in terms of digitization of inventory, in terms of taking the inventory even I think on the, let’s say, one year, two year old inventory because that’s something, which significantly affects the gross margins, the behavior you’ve seen that very quiet a lot quarter-on-quarter. So just wanted to understand how you first value your inventory, which is current, which is one year, two year old and how high inventory international practices improve over the quarter.

Sandeep Jain — Executive Director

See, inventory is valued at the cost. So, whenever it comes back, we evaluate on the cost and ready to get sold. So, we realized the profit or if it’s sold at lesser price, normally that inventory is very, very less. Approximately 8% to 9% of inventory of total company which comes back, which is getting sold at our own factory outlets. Out of that is only 1% or 2% of the inventory, which goes into bulk lots, so that I think — and custom loss, but otherwise all the inventories sold above the cost.

Sonal Minhas — Prescient Investment Management — Analyst

So, inventory valued at cost and whether it’s one year old, two year old, three year old basically [Speech Overlap]

Sandeep Jain — Executive Director

We don’t keep three year old inventory in our system. It’s mostly one and two year old. So, we try to get rid of the two season last in inventory as positive as earlier as possible.

Sonal Minhas — Prescient Investment Management — Analyst

And that is done through factory outlets, that is done through ecommerce, how is that done actually?

Sandeep Jain — Executive Director

Some of them is done through factory outlets and some of them is through selling bulk lots.

Sonal Minhas — Prescient Investment Management — Analyst

Bulk lots is in B2B.

Sandeep Jain — Executive Director

Bulk lots basically in B2B.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. And if I were to just quantify what percentage of inventory would be certain sold in bulk lots, just a ballpark.

Sandeep Jain — Executive Director

That is, I think hardly 1% of our total inventory. I can give you a total actual figure also of last financial year. A [Indecipherable]

Sonal Minhas — Prescient Investment Management — Analyst

Just want to understand [Speech Overlap]

Sandeep Jain — Executive Director

That is approximately 1% of the total inventory. It’s not that much because most of the inventory is getting sold at our own factory outlets. So, it’s just a balance some of the items like you asked about two year band, three year band, we need to sell it through bulk lots, and it was not getting sold at our factory outlets.

Sonal Minhas — Prescient Investment Management — Analyst

Got it. And you said roughly 89% of inventory comes back from third-parties.

Sandeep Jain — Executive Director

Approximately in whole company.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. And sir, on debtors, just wanted to understand, I see a downward trend from March 2018, and now, that is going down. But what is our — on the ground tangible set of the company is doing to actually improve its working capital? I wanted to understand that, if you could explain that.

Sandeep Jain — Executive Director

We are making every conscious effort to bring the debtors down and we are having a tight control on our even agents distributors also and our EPS also, that is helping us and that is happening us in brining debtors down.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. Any near-term targets are like, for example, one year or two year out what is company aspiring to achieve in terms of cash conversion or our debtors [Indecipherable] anywhere.

Sandeep Jain — Executive Director

We would like to bring the debtors down every year. The number of days or the debtor position and [Speech Overlap] but it cannot be come down at a certain 120 level because we sell it around 90 days in most of the goods. And also, there are — there is some [Indecipherable] which NCS basis which also takes time. So that would be the prudent level of I think 120 days, you can presume it as the debtors level.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. And sir, compare to let’s say, your competitors, what would be our days practice or channel practice, which if I were to just compare with to your peers in the market? Are you leaving what credit on the table? I mean, is it comparable to your competitors? Just trying to understand that.

Sandeep Jain — Executive Director

It is a comparable to all the [Technical Issues] surviving in the market, because when we’re selling to retailers, they have the trade period from all the companies. So mostly, all of the companies who are operating the same business area, normally have more or less same credit days.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. I understand that. Sure, I’ll come back [Speech Overlap]

Sandeep Jain — Executive Director

In our case, as you know that our sales is basically happening in the third quarter, so at that time, we have to supply our goods little earlier, before we starting of the season. So, that –some number of days more than the other companies as some sale is happening in discounts also in Jan and Feb, because in period, they give us the payments once the goods are sold. So that makes some of the days increase in that case. And not all companies have third quarter revenue which is more than other quarters. So basically, we are in a segment where the third quarter contributes almost 50% of the sales of the company.

Sonal Minhas — Prescient Investment Management — Analyst

Sure. So, there is a reason for the — even holding to inventory and debtors, basically.

Sandeep Jain — Executive Director

Yeah, that’s the reason that we hold national inventory in September quarter, because we have to dispatch those goods in September and October, and some goods goes till 15th November. So that is the reason we have to hold high inventory in our system to fulfill the winter sales.

Sonal Minhas — Prescient Investment Management — Analyst

Got it. And sir, if I may just ask like, to understand how much — let’s say if the MRP — of product is INR100 bucks, how much roughly in the channel and realize across it?

Sandeep Jain — Executive Director

I don’t have a readymade teaser available available with us.[Speech Overlap] I can ask my account department to check it and I’ll let you know get after this call.

Sonal Minhas — Prescient Investment Management — Analyst

Sure, sir. Thanks a lot.

Operator

Thank you. We have the next question from the line of Gaurav Sud Ziva, an investor. Please go ahead.

Unidentified Participant — — Analyst

Hello. Good morning, sir. You have given an estimate of around 20% growth this year. If may I ask, what is your vision for the next few years, maybe three to five years? Will we be able to grow at the same pace?

Sandeep Jain — Executive Director

We intend to grow at the same pace. But again, it depends on the economy. It depends on the macro conditions globally also. So, — but if everything goes well, and the economy is growing at 6% to 7% per annum in India, as we have been growing in this financial year, I don’t think this target is difficult for us to reach.

Unidentified Participant — — Analyst

Okay. That’s from my side. Thank you, sir.

Operator

Thank you. We have the next question on the line of Abhishek Maheshwari from SkyRidge Wealth. Please go ahead.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Yeah. Hi, thank you for the opportunity. Couple of questions. This quarter, Q2 your advertising and business promotion expenses were very high. And you’ve said that you’ll be able to – will be maintaining the leverage at 3%, right? 2.5%, 3%. So, like, going forward in coming, should we expect that every Q2 this particular line item will be higher than for the other quarters? Will it spread evenly across all four quarters in coming years?

Sandeep Jain — Executive Director

If we cut down there advertisement expense heavily in the probably in the next year. And now there is a need to increase our advertising cost because we need to promote in various geographies and various channels also, so that is why the guidance which was 1% to 2% last, it has gone up to 2% to 3%. But we’ll stick to our guidance. There can be variations in quarter-to-quarter, in some quarters, it may appear more, and in some quarter, it may appear less, but the overall guidance will remain at 2% to 3% of the revenues.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Okay. So, I should not assume that Q2 will be the highest or [Speech Overlap]

Sandeep Jain — Executive Director

Assume that it is up — overall percentage will remain same, but separate depending upon the season, depending upon the suppliers, depending upon the requirement of the markets can change from quarter-to-quarter.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Okay. — Sir, second question regarding the sales growth. So, in H1, you have already crossed 39% — 29% sales growth. Also, in Q3 being the best quarter, and now that you’re opening — what many stores, you say we’ll be able to cross 30% range for the full-year, FY ’23?

Sandeep Jain — Executive Director

It’s a good guess. So, H1 already I think, we have achieved on the [Speech Overlap] given the guidance. And again, reiterate the earlier statement that the 20% to 25% growth is very much achievable, and we are on the track of that. And there might be some surprises if the season goes very well.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Very good. Sure. Sir, third question J&K facilities in only [Indecipherable] we producing blankets, right? Or will be have machine way to accommodate some other products also?

Sandeep Jain — Executive Director

So, can you please repeat it?

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Sir, J&K facility, it will only be producing blankets, or we will have the equipment and machinery to be able to produce some other products?

Sandeep Jain — Executive Director

This facility is put for and blankets and quilts. So, we’ll be making quilts also, we will making blankets also. And then we have a future plans to put up another line, which is a blanket and plano fabrics. So that is in the second phase of this project, but the first project — the first phase of this project will be having a blended line and also the quilting line. And there is also a plan of doubling this capacity after one year.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Okay. So, sir, some phase one comparisons capex of INR80 crore, right? spread over in the next one year?

Sandeep Jain — Executive Director

Yes.

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Okay. Sir, my last question, any capex are you planning for backward integration also or you are focusing more on brand development and garment manufacturing?

Sandeep Jain — Executive Director

See, there is a requirement of some warehousing for the company as the business is growing and it’s growing at — last year, we grew at 45%, this year, we’ll be growing around 20%, 25%. So, we need more space for our products to be dispatched from central warehouse. So we are putting up two warehouses in Ludhiana, one warehouse is already completed which is 82,000 feet, and one warehouse is under construction, which is approximately 2 lakh square feet. So this will be having a cost of around INR26 crore to INR27 crore in the capex and no backward integration.

— no backward integration, it is just the requirement for the future business and supplies for the warehousing [Indecipherable]

Abhishek Maheshwari — SkyRidge Wealth Management — Analyst

Okay. Thank you very much, sir. All the best.

Operator

Thank you. We have the next question from the line of Dhiral Shah from Phillip Capital. Please go ahead.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Yeah, good afternoon — good morning, sir. Thanks for the opportunity. So, what is our capacity utilization?

Sandeep Jain — Executive Director

Right now, we are going to [Indecipherable] installation in both the plants.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. So, but — do we have a [Speech Overlap]

Operator

This is the operator, [Technical Issues] the speaker phone, there is a lot of background disturbance that is coming from your line.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Yes, so what — wanted to know as you are guiding for almost 20%, 25% growth, so do we have incremental capacity to achieve our growth guidance?

Sandeep Jain — Executive Director

See, the incremental capacity is not the issue. Basically, we are more of 70% of our products are outsourced. So, for cotton segment and woolen realized surplus capacity available with us. So, there is a no constraint as far as increasing capacity or increasing outsourcing is concerned.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. Any reason why our online sales have been half, if I compare with H1 to H1?

Sandeep Jain — Executive Director

See, as we already told that there are variations from quarter-to-quarter some supplies are happening in October, so that will get compensated when the next quarter comes.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Sagar Shah from — an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yes, thanks for the opportunity. Sir, I just wanted to know like, what top line or revenue growth can we expect for next two, three years? Can you give some guidance on that?

Sandeep Jain — Executive Director

See, I think, again, we’ve already stated this earlier also that we said, we intend to grow 20% to 25%, and we hope to grow at the same range. Again, it depends on the macro conditions of the country, and also if the countries keep on growing at this kind of pace which we have been growing in this financial year. So, we don’t see any difficulty to manage growth rate whatever we achieved in this financial year also.

Unidentified Participant — — Analyst

Okay. Thank you so much.

Operator

Thank you. We have the next question from the line of Amarnath from Ministry of Finance of O&M [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Hi. Am I audible?

Sandeep Jain — Executive Director

Yes, you’re audible.

Unidentified Participant — — Analyst

See, I just wanted to have some clarity in respect of this transer pricing mechanism between Monte Carlo as a company and all this Nahar group of the company. Now, I can see from your [Technical Issues] report as well a lot of purchase and sales transactions are happening between this two group companies, as purchase side and as well sell side. Can you just give a clarity that how you decide this transfer pricing mechanism? And what exactly the purchase and sales going on, which is good company?

Sandeep Jain — Executive Director

See, this happens at arm length prices. So, whatever price we sell to the market, this held to Monte Carlo. And there are some exposures which are available with our group companies, we buy from them. Like, if we talk about the woolen yarn, so they are one of the few suppliers in India, who supplies quality woolen yarn and it comes to us at arm length prices. And again, it’s audited by our auditors also.

Unidentified Speaker —

[Speech Overlap] the audit committee.

Unidentified Participant — — Analyst

Yeah. I do understand that part, because the volume of the transaction of buying and selling considering your total yearly purchase and yearly sales is quite substantial. Don’t have the other supplier, other than your group company?

Sandeep Jain — Executive Director

No, no, it’s not substantial at all. If you see, it’s I think around 10% of the total purchases we do in a year.

Unidentified Participant — — Analyst

And what [Speech Overlap]

Sandeep Jain — Executive Director

Less than 10%. It’s a less than 10% of total purchase we do in a year.

Unidentified Participant — — Analyst

And what you sell to them?

Sandeep Jain — Executive Director

We don’t sell anything to them. If there are some requirements from their side, like sometimes they ask for some sweaters and from jackets or some products which are available with us, we sell them at the market price. So, basically, these transactions all our recorded at arm length prices.

Unidentified Participant — — Analyst

Second thing. Now, if I read into your quarter-by-quarter on your quarter’s presentation, it seems that the focus of management, is going to much towards cotton side, and it is being highlighted every time that every quarter my cotton sales — cotton related sales are increasing compared to that. Why does this company’s expertise is on the woolen brand and virtually, there is no competition in terms of your brand capability on the woolen side? I’m just trying to understand, why we’re growing so much towards this cotton side which is hundreds of other companies are there in the competition, compare to woolen? Though, I know woolen is a more of a seasonal product which where you have very huge competitive advantage and brand name and others, which is well established and even now, your competitors cannot come close to it in terms of your brands capability, why you’re so low there and higher to the side?

I understand the seasonality factor you wanted to mitigate and everything, but if it is not going too much on the one side coming out of your expertise area.

Sandeep Jain — Executive Director

Yeah. I’ll answer in two steps. See, being a tropical country where we have nine months almost summers and 3 months of winter, it gives less core winter products to grow exponentially at a higher growth rate. And secondly, if you see the geographically, it’s generally, the Northern and Eastern region, we have winters. But if you want to compete in south and west, you need to a very strong cottonwear also.

So, thoroughly, we don’t want to restrict ourselves only to one category and then to limit ourselves at the mercy of the weather also, if sometimes the weather is not that severe, and the weather is mild, it may affect us also. So, considering all the [Indecipherable], company has taken a thought of going aggressively into cottonwear segment to stay competitive in all the geographies, and also that helps company not to have dependence on one category and but other categories could support the growth.

Unidentified Participant — — Analyst

Yeah. Okay. So, to third probably the little clarification. With respect to see — in terms of your brand and the quality of the product, which is especially in the last two years, you’ve improved a lot, but most of our sales are going towards the B2B side and we don’t directly go to the customers and that’s why our working capital in terms of receivables and others is just increase. So, what’s the company’s plan to attract and go directly to the consumers, where your working capital things will also be reduced as well as your pricing power and a brand’s power can be more visible rather than going through lot of middle-man here and there, and selling through B2B, not really on the B2C matter?

Sandeep Jain — Executive Director

This is contrary to what we’re doing. We have around 336 EBOs. We didn’t direct contact with the customers. We have more than 2,000 retailers who are in direct contact with the customer whom the goods are going directly from factory to those places. So, very strange to know that you are saying that we are doing only B2B [Speech Overlap]

Unidentified Participant — — Analyst

Are you selling directly to customer or through your retailer?

Sandeep Jain — Executive Director

Yes, we are selling directly to the customers. We are selling directly to the our retail partners, who sells to the customers. So, it’s not that I can’t — I just can’t go and directly to the customer and sell my goods. We have to sell through outlets. We have sell through retail shops. We have to sell through websites. [Technical Issues] And this is what everybody else does in India.

Unidentified Participant — — Analyst

Now let me rephrase the question. Sorry. Maybe I did not able to put the questions properly. Let me rephase. See, the question is that, in other brands, for example, our [Indecipherable] or others — other brands, they directly sell to the customer through different outlets and it’s collect the cash almost immediately. So, if you see the receivable part is really lower. I mean, sometimes they are negative working capital if I take out the inventory part out, then in our case, we’re going to retailers or MBO channels and others, where we’re keeping our receivable stuff and we’re getting it at a 120 days compared to if I sell to direct customers where the realization is immediate. I’m just trying to understand that part.

Sandeep Jain — Executive Director

We get to correctly you in there, all the brands in India, all of the same model. They sell through their own outlets, they sell through multi-brand outlets, they through national national format stores, they sell through their websites. And yes, all the companies in India are operating in the same way, in which we also operate. But the receivables in our case is, I’ve already towards that in winter season, the inventory becomes very high, and also there is a long winter season sales for — sale period also. That is why the receivable days have increased. Otherwise, the model is quite same as other brands as in India.

Unidentified Participant — — Analyst

Okay. And what is the cotton price impact now? Now the bottom [Speech Overlap]

Operator

Kindly, come back in the queue for follow-up questions.

Unidentified Participant — — Analyst

Thank you.

Operator

We have the next question from the line of Riya Mehta from Aequitas Investments. Please go ahead.

Riya Mehta — Aequitas Investments — Analyst

Hello. Thank you for giving me this opportunity.

Operator

Ms. Riya, your voice is coming a bit lower, so we should go out the speaker phone and come on the handset mode.

Riya Mehta — Aequitas Investments — Analyst

Hello. Am I audible?

Operator

Yeah. You’re audible.

Riya Mehta — Aequitas Investments — Analyst

Yeah. So, my first question pertains to on the macro front, what is the strategy of the company going forward? Are we going to increase our cotton share or you will be increasing both in cotton as well as woolen for the share remaining constant? This is the first question. Second would be, in terms of geographical presence where are we looking to for [Phonetic] them more? And third would be in terms of margins [Technical Issues] since cotton as a percentage is increasing, do we see this trend to continue going forward? And what kind of outlook, would you want to give for that?

Sandeep Jain — Executive Director

Consciously, we are increasing our cotton presence year-by-year, because we know you that, as I answered earlier also that’s being a tropical country where we have nine months of summer and also geographies, where the summers are almost 11 months. So, consciously, we are moving into more of increasing cotton sales as there are limitations for selling the woolen items in those areas.

And secondly — what was the second question?

Unidentified Speaker —

Geographies.

Sandeep Jain — Executive Director

Geographies already done.

Unidentified Speaker —

Geography and margins.

Sandeep Jain — Executive Director

Margins?

Unidentified Speaker —

Company’s margins going forward.

Sandeep Jain — Executive Director

See, margins — I think we’ll be able to sustain our margins going forward in this financial year also, because all of the increase in cotton prices have been passed on to the consumers.

Riya Mehta — Aequitas Investments — Analyst

And what kind of winter order book are we looking for?

Sandeep Jain — Executive Director

[Indecipherable] winter order book. [Technical Issues] See, winter order book has been quite strong as we said earlier also in our business update, which we given in last quarter. So, the order booking was more than 15% overall as far as woolens are concerned. So that is giving us the confidence to reiterate that we will be growing 20%, 25% in this financial year.

Riya Mehta — Aequitas Investments — Analyst

Okay. Thank you. That’s it from my side.

Operator

Thank you. We have the next question from the line of Sonal Minhas from Prescient Investment Management. Please go ahead.

Sonal Minhas — Prescient Investment Management — Analyst

Thank you for taking my question again. I have two questions. First of all, [Speech Overlap]

Operator

Sonal, your voice slightly breaking up. If you will come on the handset mode once.

Sonal Minhas — Prescient Investment Management — Analyst

I am on the handset. I do know that — in bad network. Am I audible? Am I better now?

Operator

Yes.

Sonal Minhas — Prescient Investment Management — Analyst

Okay. Sure. Thank you. Sorry for the [Indecipherable] I had two questions. The first one was around induction of professional management in the top ranks of the company. I wanted to understand what is the plan of the company in the next three, four years or in the last two years? What have we done to actually professionalized the management over and beyond the promoter group?

And secondly, I think, just wanted to understand the related party transactions. I think as an investor, I think as just the [Indecipherable] community — understand a little bit more disclosures around related party transactions, because if I see FY ’22, FY ’21 annual reports as well, is a fair bit of [Technical Issues] so if this — is this a business call candidly be done from other entities? Just wanted to understand the commercials of this in greater bid. And if this can be tapered over the course of next two years, three years, [Indecipherable]

Sandeep Jain — Executive Director

To say come to the first part of your question where you were asking about the professional who have been inducted. See, our company is basically a professional-driven company. Definitely, there are owners involved, but they’re involved in only when the major decisions, all the decisions literally have been taken by the professional depending upon the market and depending upon everything. And as far as related party transactions are concerned, it’s own arm length prices, I answered earlier also. That it’s all — it’s all audited by the auditors also and this all related party transactions are even less — less than 10% of our total overall purchase.

So, I don’t think so — I don’t think that there is any anything which says that we purchase more from our group companies and less from others, it is just less than 10% of the total purchase which has happened in the company.

Sonal Minhas — Prescient Investment Management — Analyst

And — sorry, you were saying something, or should I? I think I have a follow-up.

Sandeep Jain — Executive Director

Our audit firm is the best in the country. The Loyalty[Phonetic] is auditing us, and they are also auditing the related party transactions.

Sonal Minhas — Prescient Investment Management — Analyst

I understand that. And is there a business commercial reason to buy from these groups because entity? Just wanted to understand, is there — they’re a sole vendor for that or is there something which this only produce?

Sandeep Jain — Executive Director

See, if there’s woolen yarn, also is only one which produce woolen yarn and they supply to other [Indecipherable] also, even this prior to Maserati supply previous following to Bennett. And so, they supply to us also and it’s on arm length price.

Sonal Minhas — Prescient Investment Management — Analyst

Okay, sir. Thank you, a lot.

Operator

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

Danesh Mistry — First Advisors — Analyst

Yes. Hi. Thank you for taking my question again. I had a question on the stores, you said that in our 30 to 45. So, these are the EBOs, so that means that we’d be paying more relief for the stores and how does that work out for us? Thank you.

Sandeep Jain — Executive Director

Mostly, they’re franchise outlets. So, 90% of the — 80%, 90% outlet open are franchise, more franchise pays the rentals. And there are some locations which are high rental locations, which you can take another four to pay. So, those are taken by the company and managed by the company. So that is how we proceed every year.

Danesh Mistry — First Advisors — Analyst

Okay. But do you see any major incremental increase in our rentals because of that? So, let’s say in the major location we take an [Speech Overlap]

Sandeep Jain — Executive Director

We don’t see — we don’t see a major capex going into this side.

Danesh Mistry — First Advisors — Analyst

Got it. Okay. Thank you so much. And the rents, the rent part [Technical Issues] don’t see a major increase, right?

Sandeep Jain — Executive Director

Rent part is borne by the franchisee normally, but wherever we take the — [Speech Overlap] go for rent, we bear the rent. And then we completely pay commission to the franchise.

Danesh Mistry — First Advisors — Analyst

Correct. So, but we don’t see a big increase in that rental cost for us on a company level [Speech Overlap]

Sandeep Jain — Executive Director

We don’t see a — we don’t see a big increase in rental costs for the company.

Danesh Mistry — First Advisors — Analyst

All right. Okay. Thank you very much.

Operator

Thank you. We have the last question from the line of Nikhil Jain from Galaxy International. Please go ahead.

Nikhil Jain — Galaxy International — Analyst

Yeah. Thank you for the opportunity again. Just wanted to know — just couple of questions. One, in the cotton segment and in the woolen segments, what would be the kind of margin difference between these two? And do we anticipate that margins for the cotton segment kind of catch up with the woolen segment as we move along over the next two years to three years? So that is question number one.

And second is on the store front. So, just wanted to get some idea on the economics of a store. So, let’s say when do the franchisees are generally are able breakeven on the stores that they open? If you have any view on that.

Sandeep Jain — Executive Director

Let’s come to the first question where you are asking about margins in the cotton and woolen segment. I’m happy to share that the cotton segment is actually a more margins at PBT level as compared to woolen segment. So that I think answers your question. And secondly, we expect that to break in three years as and when you franchise, breakeven in three years.

Nikhil Jain — Galaxy International — Analyst

And in the past performance of the EBO stores is in line with this expectation, right?

Sandeep Jain — Executive Director

Yes, that is why we have been able to increase. And most of our existing franchisee you open more showrooms and more EBOs for us. So that shows us that whatever we have planned actually it is as per that expectations only.

Nikhil Jain — Galaxy International — Analyst

Okay. Thank you.

Operator

Thank you. I would now like to hand it over to the management for closing comments.

Sandeep Jain — Executive Director

Thank you very much for participating in our conference call. Still, if you have any questions, which are not answered or any queries, which have not been replied, you can please ask always for Mr. R.K. Sharma, our CFO at investormontecarlocorporate.com, and also you can ask our investor agency, Dickenson World, for any queries. Thank you very much.

Operator

Thank you on behalf of Emkay Global Financial Services, that concludes this conference. [Operator Closing Remarks]