Why Did Dolly Khanna Increase Stake in this Leading Branded Apparel Smallcap Stock?

For the past couple of months, something interesting is happening in the smallcap space. The BSE smallcap index is nearing its lifetime high levels, touched in January this year.

Chartist Brijesh recently highlighted that the broader index is yet to catch momentum with larger index.

Meanwhile, smallcap expert at Equitymaster Richa Agarwal suggests both upside potential in smallcaps and the need for caution.

The smallcap to Sensex ratio is higher than the long-term median of 0.44 times, yet way below the previous peaks.

It appears a lot of money is chasing smallcap stocks.

The top investing gurus in India have also expressed their bullishness towards select smallcap stocks.

For instance, Vijay Kedia added exposure in smallcap stock Elecon Engineering in the quarter gone by.

Meanwhile, Ashish Kacholia took exposure in a smallcap stock that has rallied 1,000% in 5 years.

Adding to the list is Dolly Khanna. Data revealed shows that the star investor has added exposure in a smallcap stock from the textile space.

A word about Dolly Khanna...

Dolly Khanna is a Chennai based investor, who is known for picking lesser-known midcaps and smallcaps. She has been investing in stocks since 1996.

Dolly Khanna's portfolio, which is managed by her husband Rajiv Khanna, is usually inclined towards more conventional stocks in manufacturing, textile, chemical, and sugar stocks.

Which smallcap stock did Dolly Khanna buy and why?

The latest shareholding pattern of Monte Carlo Fashions shows that Dolly Khanna added 0.71% stake in the textile firm during July-September 2022 quarter.

As of the September 2022, her stake in the company stands at 2.49%. In the previous quarter, she held 1.8% stake.

Khanna has been holding a stake in Monte Carlo Fashions since December 2021 quarter.

While we don't know why Khanna added exposure in Monte Carlo, there are some reasons that we can guess...

Monte Carlo is among the top textile companies in India.

For the past few quarters, Monte Carlo has delivered stellar growth in revenue and profit.

In the June 2022 quarter, the textile company registered record sales as cotton prices eased and due to strong store addition.

The company opened 11 new exclusive brand outlets (EBOs). It plans to open a total of 30 stored by end of March 2023.

In an exchange filing, the company said it saw strong demand across segments in terms of revenue with things getting back to normal.

A month ago, the company declared its September 2022 results where revenues saw a 5% growth.

The company said revenues for the quarter were good on the back of end-of-season sales and encouraging festive and wedding season across India.

It strengthened retail presence by opening 14 new EBOs and now has a total of 335 EBOs.

Going forward, the company has a strong order booking for the summer season.

Meanwhile, winter season has started early this year in some parts of India. Monte Carlo dominates in the winter woolen wear segment with more than a 50% market share. It derives around 26% of revenues from this segment.

Revenue Breakup

Improving quarterly performance and coming winter season could be the reasons why Dolly Khanna turned bullish on Monte Carlo.

Monte Carlo also stands to benefit from the center's PLI scheme. This year, the company was qualified for the government's production-linked incentive (PLI) scheme for the textile sector.

At present, the textile company is trying to increase its online presence.

How Monte Carlo has performed in 2022

In 2022, Monte Carlo share price has gained 13%. Today, the stock is up 1% and is trading at Rs 690.

Monte Carlo has a 52-week high of Rs 908 touched on 15 September 2022 and a 52-week low of Rs 425 touched on 30 May 2022.

Monte Carlo has a good track record of paying dividends since 2015 and rewarding shareholders through buybacks.

For 2022, the board of directors recommended a final dividend of Rs 200% i.e. Rs 20 per share.

Take a look at the table below which compares Monte Carlo with its peers on various parameters.

Comparative Analysis

Company	Monte Carlo	Mayur Uniquoters	Kitex	Gloster	Arvind
ROE (%)	17.7	14.2	16.6	6.3	8.5
ROCE (%)	24.1	18.0	22.3	10.5	12.2
Latest EPS (Rs)	55.0	23.9	20.6	120.6	15.4
TTM PE (x)	12.4	19.8	9.8	15.7	6.1
TTM Price to book (x)	2.1	3.0	1.5	1.0	0.8
Dividend yield (%)	2.9	0.4	0.7	1.9	0.0
Industry PE (x)	31.4
Industry PB (x)	6.7

Data Source: Ace Equity, Equitymaster

About Monte Carlo

Monte Carlo Fashions is a fashion house offering clothing products for men, women and tweens.

The company was initially launched as an exclusive woolen brand. Today, it has a well-diversified presence across different categories such as Cotton, Home Furnishing, and Kids wear. It has also gained ground in the production and supply of accessories like ties, belts, and socks.

To know more, check out Monte Carlo's financial factsheet and its latest quarterly results.

You can also compare it with its peers:

Monte Carlo vs RSWM

Monte Carlo vs Arvind

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...