Koutons Retail (India) Ltd

Initializing Coverage

Key Data 

Investment Rationale 

The Company was incorporated on November 25, 1994 as Charlie Creations Private Limited. The company name was changed to Koutons Retail India Private Limited with effect from February 7, 2006. The company has an integrated apparel manufacturing and retail company in India engaged in the business of designing, manufacturing and retailing apparel under the ‘Koutons’ and ‘Charlie Outlaw’ brands through a network of 999 exclusive brand outlets (as of August 20, 2007) across India.

As of August 20, 2007, the company has 18 in-house manufacturing/finishing units and 14 warehouses that are spread across various locations in and around Gurgaon, Haryana. The company has increased the annual finishing and manufacturing capacity from 3,000,000 and 600,000 pieces of apparel, respectively as of March 31, 2005 to 22,920,000 and 12,360,000 pieces of apparel, respectively as of March 31, 2007. The company has a finishing capacity of 22,920,000 pieces per annum.The company has also entered into fabricating agreements with various manufacturing units to outsource stitching of certain apparel. The company’s manufacturing and finishing facilities are backed by adequate facilities for product testing, apparel development, design studio and sampling infrastructure to ensure high quality apparels for customers. 

Aggressive Roll-out plan

The company is growing at a very rapid pace. In the past tow years the total outlets has increased from 74 in FY05 to 687 in FY07. Out of the 687 outlets 487 outlets are Koutons outlet and remaining outlets are Charlie outlaw outlets. At the end of FY07 the company had an aggregate area of 517250 sq.ft. of which Koutons covered ~78 percent of this area.  

Positioned as a “High Fashion value for money store”

Koutons retail is uniquely positioned as a “High Fashion Value for money” store. “Koutons” and “Charlie Outlaw”, the two brands of the company target the middle income group which is expected to constitute the largest proportion of population by 2025. The company offers products for all age groups and sells the entire range for men’s and kids wear and western wear for women. As the proportion of working population is rising the demand for the products of the company will see a substantial growth.  

 Low risk high return model

The company operates its exclusive brand outlets (EBO’s) through franchise route. Koutons requires low capital for expansion and doesn’t have to bear rental cost as its paid by the franchise. This result in high profitability enjoyed by the company compared to its peers. Out of the total outlets ~98 percent of the outlets are operating through this route.  

Large and growing addressable market                             

The organized I Indian apparel market (at $4.7bn, growing at an annual 30%) is expected to reach $17bn by FY12. Of this, we expect about 50% would come from the mid- to lower- income segment. Thus, the addressable market for Koutons stands at $10.5bn; even a share of this (12% in the men’s and 3% in the relatively new women’s and kids’ categories), All these lead to huge working capital

would lead to a turnover of ~$0.5bn by FY12 (Rs 19bn). 

Key Developments 

Koutons Retail plans foray into China, W. Asia

Koutons Retail India Ltd plans to foray into China by the end of this year. Not many Chinese brands are present. Koutons sources most of its materials from China and some from Japan, so it would be an opportunity to leverage the sourcing with the marketing, he explained. Manufacturing base. The company will be going to China in the next two months, as a part of the Clothing Manufacturers of India group, to explore the possibilities.  

Koutons recently acquired 51% stake in upper class, a Delhi based brand

The company recently acquired 51 percent stake in Touchwood International Pvt Ltd, which owns Upper Class, to expand into the women’s segment. The company operates 1,150 stores, of which 612 are exclusive outlets of Koutons, and 528 of Charlie Outlaw. 

Financial Performance 

Koutons Retail (India) Ltd ended the year with a 154% YoY increase in revenues to Rs 402.39 crore, on the back of its strong focus increasing the outlets. This high growth is mainly due to the aggressive roll-out of outlets along with franchise model. For the year ended FY07, EBITDA stood at Rs 68.89 compared to 25.63 in the yaer earlier.EBITDA margins for the year ended has increased from 16.21 to 17.69 by 9.10%. Koutons Retail ended the FY07 with 158% YoY increase in net profit to Rs 34.18 crore. 

Valuations 

At current market price of Rs 766.05 the stock is quoting at a PER 54.72x. On EV/Sales and EV/EBITDA it is available at 5.98x and 34.26x of TTM September 07 earning respectively.

Click Here for In-depth Koutons Retail (India) Ltd research report by KR Choksey, company profile along with stock recommendations, Koutons Retail (India) Ltd target price and for making informed investment decisions.

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