Koutons went public in 2007. The IPO was priced at Rs. 415. The Current Market Price is much lower than the IPO price. On Sep 25 2009, the stock closed at Rs. 330 on the BSE. One would think, why would i invest in a sector highly affected by recession? There are many answers.
First, Koutons follows the franchisee mode of business. It has stores in all big (a massive network of more than 1,400 stores across the country covering 496 cities) and not so big cities in the country. But it doesn't own them. This mode of business, although reduces margins, but remains a defense against rising rentals, unnecessary inventory buildups, and other such problems plaguing the big retailers. With economies of scale, Koutons has been able to sustain the recession courtesy its business model. While designing, manufacturing and distribution is being done in-house, the franchisee model for retail has helped it control costs. Also, the products of Koutons are not very expensive, and are affordable to the masses. And thus, it manages conversion of 80-85% footfalls into sales. Koutons showed a 32 per cent increase in sales for the full year 2008-09 versus the last year with an equal increase in operating profit of more than 30%. Koutons is a good performer at operating margin levels, maintaining a steady growth on an annual basis in a span of three years; operating margins for H1FY09 were at 18 per cent.
Also, Koutons is expanding. About 90% of retail expansion is carried out through franchisees. The average agreement period of a franchise is of around 8-10 years, and Koutons' franchisees have remained loyal in most of the places i have seen, at least. This is another positive for such a company- if the franchisees are staying, it means they're making money- which means Koutons can have a better topline. Capex requirement is low. Rentals and employee costs, which have been a key drag on margins and funding requirements of many retailers in India- are to be borne by the shop owners. This makes rapid expansion possible. Koutons now plans to raise Rs. 100 cr by a QIP issue for the same.
Negatives for the company? Debt at high interest. It owes money to foreign banks which charge more for the loans. However, debt restructuring has led it to transfer the debt to PSU banks that charge lower rates.
The valuations are attractive, top line is increasing and so is the operating profit margin. What is killing the net is the high interest rates. At Rs. 330 a share, Koutons is still a good investment proposition (although it doesn't give good dividends) given the fact that it has not yet inflated to higher levels as have its peers. It has an impressive book value of 140 and an EPS of around 26. That makes it trade at P/E of 12.6 with a market cap of 1008 cr. Its peers Pantaloons and Provogue trade at P/Es of 43 and 26 respectively.
Historic Price of Koutons:
| Year | Open Price | High Price | Low Price | Close Price | No. of Shares | No. of Trades | Total Turnover(Rs.) | * Spread (Rs.) | ||
| H - L | C - O | |||||||||
| 2007 | 515.00 | 1,055.00 | 515.00 | 1,006.85 | 11030257 | 211558 | 7,327,714,088.00 | 540.00 | 491.85 | |
| 2008 | 1,018.70 | 1,098.00 | 380.50 | 508.25 | 1684573 | 32268 | 1,223,324,945.00 | 717.50 | -510.45 | |
| 2009 | 529.90 | 548.90 | 324.10 | 330.00 | 2412134 | 49178 | 958,485,748.00 | 224.80 | -199.90 | |
| * Spread H - L -> High - Low C - 0 -> Close - Open | ||||||||||
In the short term, an upward correction is possible.
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