Koutons Retail India Ltd: Mid/Long term jewel
BSE Code: 532901
CMP: Rs.435
EPS: Rs.25.85
Price/Book: 3.8
Market Cap: Rs.1328.99 Cr
Target: Rs.525—Rs.690
Time: 9-12 months

Introduction: Koutons Retail India Ltd (KRIL) is the leading retailer of readymade and stylish fashion wear brand in the country today. With a wide range of apparel designs suited for all segments including corporate, formal and casual dressings for men, women and children, Koutons aptly creates the conducive environment for a family outing, making the family shopping the very best experience at the affordable prices - all at one place.

Koutons is the pioneer in making fashion a household name, through unique promotional schemes and by bringing in modern and fashionable wear within the reach of all segments of society. Today Koutons garments are a name to reckon with in both large and small cities with wile presence in the malls and at high streets. With a careful selection of fabrics mostly dominated by cottons, viscose, worsted wool blends, rubia, printed cotton fabrics, poly cotton fabrics, garment cotton, mill made cotton fabrics, Koutons has an exclusive team skilled and dedicated to develop, discover and stitch - manufacturing garments and making these available to customers.

Called a first of its kind fashion destination with a host of world-class merchandisers and retail experts, Koutons has its retail logistics in place appropriately to suit the market needs and track the key areas which are future business opportunities.

Shareholding Pattern: The promoters hold 63.63% while the general public holds 33.37% of the shares of the company. Also 20% of the shares are locked in for trade, leaving very little shares in the open market.

Financial: The total income of the company for Q3FY09 came out to be Rs.242.30 Cr as against Rs.174.8 Cr in the same period previous year. The net profit of the company for Q3FY09 came out to be Rs.13.01 Cr as against Rs.12.12 Cr in the same period previous year. The EPS of the company for Q3FY09 came out to be Rs.4.36 as against Rs.4.01 in the same period previous year. This is on a small equity capital of Rs.30.55 Cr.

Investment Rationale:

• An effective business model: KRIL is a strong player in the value-retailing format, which provides huge opportunity in a country like India, considering the predominant price conscious nature of the Indian consumer and a strong growing middle class. The company’s integrated operations help it maintain better control over quality and costs. The company’s franchisee model plays a very pivotal role in its success, as it helps the company maintain control on each store’s operation and at the same time encourage entrepreneurship, which drives its top-line.
• Strong brand positioning: The Company’s strategy is to sell fashionable apparels at affordable prices. Thus, KRIL’s target customer is the lower and middle income group, which is the major consuming class. Additionally, the company’s brands are targeted towards young and mid age group, with high fashion aspirations. The company manufactures and sells apparels for men, women and children and across various categories - formals, semi-formals and casuals. Such a positioning helps the company appeal to a wide range of target customers.
• Massive expansion plan: At present, KRIL operates more than 1600 stores across India. It is expected to almost double its current store count to 2,075 by the end of FY10. During the same period, its retail space is expected to increase from 1.2 million sq.ft. to 1.7 million sq. ft. by the end of FY10. Currently, KRIL has major concentration in North India, which contributes about 53% to its revenues. However, the company plans to achieve a pan India presence by expanding in the southern and eastern India. The geographic spread of its expansion will not only widen its operations, but also reduce its regional risk.
• Superior profitability: Due to its integrated operations, KRIL eliminates various intermediaries in its value chain and thus exercises better control over its cost. This gives KRIL a two-prong advantage in terms of ability to pass on most of the cost benefits to the customer by pricing its products low, while maintaining high profitability. Consequently, the company’s operating margins are significantly higher at 18.24%, as compared to 12.92% for Vishal Retail and 10.63% for Pantaloon Retail. Further, the company’s high profitability gives it a margin of safety, in terms of reduction in pricing, to drive the volumes.

Conclusion: Though, currently we are seeing a slowdown in the retailing sector, but the demand is expected to be slowly picking up in the coming days, due to obvious reasons. Also the long-term outlook for the sector remains positive, as organized retail will continue to increase its share in the growing retail industry.

The Company has a growth based business model and also has strong expansion plans. It is expected that the company’s revenue would grow at CAGR of 30-35% over the next three years, on the back of its strong expansion. KRIL will continue to enjoy cost efficiencies and maintain healthy margins.

If we look at the charts we would find that Bollinger Bands and Stochastic are in buy mode. Though MACD is not giving any clear buy signal but it is expected that overall trend of the stock is bullish. One should buy the scrip in the price range of Rs.415—Rs.430, and wait for a break out of the current pattern. Please keep SL at Rs.375 and Rs.350 (exit completely) in case of any short term trade.