Monte Carlo sets 20% EBITDA benchmark after winter price rise

Monte Carlo Fashions Limited raised winterwear prices by 8%-9% for the FY '27 selling season to offset higher raw-material costs and now regards an EBITDA margin of about 20%, including other income, as sustainable rather than the exceptional FY '23 level.

Why did Monte Carlo raise winterwear prices by 8%-9%?

Monte Carlo raised prices by around 8%-9% in winterwear because management said the increase should cover the rise in raw-material costs for that category. The action followed pressure on Q2 FY '27 profitability, when revenue from operations rose 5.51% year on year to Rs 262 crore but operating earnings before interest, tax, depreciation and amortisation, or EBITDA, were Rs 28.35 crore, equal to a 10.80% margin.

The increase was aimed at winterwear rather than presented as a uniform portfolio-wide action. Management told investors that pure-wool raw-material prices had risen almost 20% over the prior year and said it expected a similar increase this year. At the same time, management said cost of goods sold had increased by 3%, explaining that procurement timing matters more than a single spot cotton-price movement.

What does Monte Carlo expect for FY '27 EBITDA margin?

Monte Carlo expects FY '27 EBITDA margin to be within plus or minus 100 basis points of FY '26, with the outcome dependent on Q3 performance. A basis point is one-hundredth of a percentage point. Management also said it was comfortable with EBITDA margin of around 20%, including other income, as a sustainable level under the current business model.

That statement resets the comparison with FY '23. Management described FY '23 as the highest-margin period, when the company was emerging from COVID-19 demand conditions, raw-material prices were lower and it secured a price increase. It said those conditions should not be used as the benchmark for future profitability, particularly as the retail mix has changed since then.

The reported first-half figures illustrate the seasonal timing behind management's caution. H1 FY '27 revenue grew 6.25% to Rs 411 crore, but operating EBITDA was Rs 15.42 crore and the operating margin was 3.7%; the company recorded a loss after tax of Rs 22.25 crore. Monte Carlo said the September half contains production, inventory build and dispatches before winter, while Q3 accounted for about 48% of FY '26 revenue.

How are discounts and channel changes affecting Monte Carlo margins?

Monte Carlo said the shift towards shop-in-shop outlets and consignment-oriented exclusive brand outlets, or EBOs, means it shares some discounts with channel partners, affecting the margin framework after FY '23. Its EBO network rose to 506 as of September 26 from 497 a year earlier, while shop-in-shop outlets rose to 632 from 578. Management linked the newer channel mix directly to its view that about 20% EBITDA, including other income, is the more relevant ongoing benchmark.

Discounting also increased in H1 FY '27 as Monte Carlo started end-of-season sales early and extended them during the low season, according to management. Rebates and discounts increased to Rs 54 crore from Rs 35 crore in the comparable prior-year half. The chief financial officer said the amount equalled 12% of revenue versus 9% a year earlier, while management cautioned that the H1 rate should not be treated as an annual benchmark.

The company also said it sold more older merchandise than in the prior year to reduce inventory, and those sales carried heavier discounts. Returns remain another adjustment between gross dispatches and reported revenue: the H1 return ratio was 30.70%, compared with 29.47% in H1 FY '26. Management said provisions are made each quarter for expected returns, although additional returns can still create quarterly variation.

What will determine Monte Carlo's margin delivery in the winter quarter?

Monte Carlo's margin delivery will depend chiefly on consumer sell-through and collections in Q3, when the winter season reaches its main months. Management said November and December normally account for about 80%-85% of winter-season revenue. It also said a later festive season shifted some sales from Q2 into Q3, but it could not quantify the effect.

Management maintained its guidance for low double-digit FY '27 revenue growth despite H1's 3.7% operating EBITDA margin, and said like-to-like growth at existing EBOs was 9% in the first six months. The company plans to add 40-45 EBOs during FY '27, focused on western and southern markets, while seeking to lift store productivity from about Rs 12,000 per square foot to Rs 15,000 per square foot over two to three years.

Conclusion

Monte Carlo's 8%-9% winterwear price increase is management's response to higher material costs, particularly the nearly 20% increase cited for pure wool. But the company has also made clear that price action alone does not restore FY '23 economics: higher discount sharing in newer channels, older-inventory liquidation and seasonal returns underpin its revised view of around 20% EBITDA including other income.

The next test is Q3 FY '27, which management expects to be better year on year and which contains most of the November-December winter selling window. Investors will be watching whether sell-through, discount levels and collections support the low double-digit revenue-growth guidance and keep annual EBITDA within management's stated plus-or-minus-100-basis-point range versus FY '26.