Q: What do you see happening to Cantabil after the fairly dismal listing yesterday?
A: I found the issue having been reasonably priced but the effect of the Koutons which has corrected quite sharply has seen its reflection coming on Cantabil. I am not saying that this is a very exciting stock but at least this should have deserved a valuation close to about Rs 120-125.
Since the shares are ruling at around Rs 105 maybe with the fundamentals having understood, things should move back to about Rs 120-125.
Q: What do you see happening to Cantabil after the fairly dismal listing yesterday?
A: I found the issue having been reasonably priced but the effect of the Koutons which has corrected quite sharply has seen its reflection coming on Cantabil. I am not saying that this is a very exciting stock but at least this should have deserved a valuation close to about Rs 120-125.
Since the shares are ruling at around Rs 105 maybe with the fundamentals having understood, things should move back to about Rs 120-125.
Now trading at 86.70.
I had read some posts on the site where members have jokingly said that they will do the opposite of what SP Tulsian says.
I had read some posts on the site where members have jokingly said that they will do the opposite of what SP Tulsian says.
That strategy would have worked this time.
Tulsian had asked people to subscribe to Cantabil and avoid VA Tech Wabag.
Tulsian may be wrong a few times, but I always read what Tulsian has to say. He is one of the few analysts who actually does his own analysis for IPOs. Market opinion doesn't influence his analysis.
Many other analysts just go with the tide and make recommendations based on market's mood rather than their own analysis.
The problem with Tulsian is he takes too much figures and technicals and discuss and said this way things should work and this way it will rule.
But finally what Gul said was these. Guys this is India. They know how companies work and lobby.They know whom to keep in pocket and whom to throw out and how to twist the law for their benefit (indirect reference to Reliance) meaning the leader of the sector also tries to twist competitors stock.
Hence we should keep both sides in mind (technical as well as fundamental) not just his talks that EPS is this and that and so on.
We all must have a look at Cantabil Retail's stores to gauge how much profit they making.
Personally (fundamentally) what I have seen is even after "get 11 for price of 2" I never see any crowd in their (Cantabil) stores.
Hence I take his (Tulsian) suggestion with buckets of salts.
Last edited by magnet : 28th October 2010 at 09:36 AM.
Is this a buying opportunity? What is the fair value?
As of now, I don't know.
I don't even know why this stock is being beaten down.
The current price of Rs 70 is nearly half of the IPO price of Rs. 135.
Koutons has its problems - high debt and high inventory and everyone knows that.
Cantabil is carrying an abnormally high inventory too, but its debt is manageable.
Before the IPO, the company had a debt of around Rs 60 crore, but it has raised Rs 105 crore from the IPO. At present the company has more cash than debt. (The cash will be used up in future, but as of now, it is still with the company).
Cantabil's business model is very similar to that of Koutons and I guess the market has taken it for granted that in future, Cantabil too will end up as a troubled company like Koutons.
I will post more later. The stock looks interesting, but I need to analyze more.
The company has a market value of just Rs 115 crore now, which is just Rs 10 crore more than the amount of money that the company has raised in the IPO.
...
I will post more later. The stock looks interesting, but I need to analyze more.
The company has a market value of just Rs 115 crore now, which is just Rs 10 crore more than the amount of money that the company has raised in the IPO.
Stock reached a new low of Rs 69.80.
Last edited by sudhashbahu : 1st November 2010 at 12:46 PM.
Bought 100 shares today at Rs 71. Was quite a tempting opportunity.
The stock was available at a PE ratio of 8. Considering that retail stocks generally trade at a PE 0f 15-20, it was available very cheap. The company is well positioned for further expansion plans. It is available at very cheap valuations considering its future plans.
Obviously, the retail sector is under pressure but this is one stock which is able to cater to the middle classes and the middle class won't stop buying clothes and thus its sales can continue to be robust.
The company is working towards improving profitability which will be visible from 2012 onwards. It's debt is under manageable levels and thus the stock is a great buy from medium term and long term view.
For short term, I am not very confident but my gut feeling is that it can run up to Rs 100 in 1 month if the market is stable. Even if the market falls, the loss on this stock shouldn't be more than 10-15%. Thus, one can buy this stock at current levels.
But, one thing to keep in mind is that one should not allocate more than 5% of his/her total cash on this stock because the company is very small.
Obviously, the retail sector is under pressure but this is one stock which is able to cater to the middle classes and the middle class won't stop buying clothes and thus its sales can continue to be robust.
It's debt is under manageable levels and thus the stock is a great buy from medium term and long term view.
People won't stop buying clothes, but people have a choice of thousands of stores to buy clothes from.
Retail sector in India is very competitive. There are thousands of big and small shops in every city and each is trying to grab more and more market share.
As I said earlier, Cantabil's business model is very similar to Kouton's business model. That is what is making the market jittery.
The model requires the company to maintain a very large working capital especially inventory.
Maintaining such a large working capital is not possible without debt. The company's debt may be manageable now, but as the company expands, its working capital requirements will go up sharply and I am sure, the company's debt will increase in the next 1-2 years.
According to RHP, the company will need an additional Rs 81 crore in the next 2 years for working capital. 30 crore will come from the IPO proceeds and 51 crore have to come from internal accruals (if everything goes as planned).
In case of both Koutons and Cantanil, lot of money is invested in inventories.
At the end of FY 2010, Cantabil had inventories of 120 crore compared to FY 2010 revenues of Rs 264 crore.
At the end of FY 2010, Koutons had inventories of 680 crore compared to FY 2010 revenues of Rs 1142 crore.
I read a few reports on Cantabil and it seems high working capital requirement is the major concern that most analysts have.
Everyday such new stores are cropping up in all lanes and streets, with fancy offers like buy 2 and get 10 free, I don't know how they will survive with over head costs shooting up, razor thin margins, and tough competition, one is not sure how many will be there, and how many would close down in a year or two, This industry itself is not an exciting one, most of them valued at their real estate value rather than their businesses, I would keep away.
It has not posted any quarterly results since the IPO. Is there something fishy going around
I am not sure, but I think as the stock was not listed in Q2, it's not mandatory for the company to declare Q2 results in Q3.
None of these companies have declared their Q2 results.
The dates are their respective listing dates.
Career Point - 6th October
ESL - 8th October
Cantabil - 12th October
Tecpro - 12th October
VA Tech - 13th October
Ashoka - 14th October
Bedmutha - 14th October
At the time of the IPO, Cantabil's balance sheet was really scary.
A networth of 30 crore, combined with 61 crore of debt and 83 crore of current liabilities were used to create 120 crore of inventories and other assets.
The company was extremely leveraged.
The promoters were playing with fire.
They must be really happy to get additional 105 crore of equity.
The difference between Koutons and Cantabil is that Kouton's "Sundry Debtors" and "Loans and Advances" can cover a significant part of its debt and current liabilities.
Cantabil had everything stuck in inventories before the IPO.
The money received from the IPO has significantly improved Cantabil's financial position, but looking at the pre-IPO balanace sheet, I am not very confident about the long-term prospects of the company.
Cantabil IPO was a clear avoid.
I am still not sure what is to be done with the stock now.
Thanks for the analysis. You have certainly given me something to worry about
Dassera to New year is the festive season and I am hoping that the companies strategy is to build up inventories till the start of the season and (hopefully) convert them to profit in this season.
I will wait for the Q3 results and sell my holding if the results are not good.
However will also await your valued advice after you conclude your analysis.
Thanks for the analysis. You have certainly given me something to worry about
Dassera to New year is the festive season and I am hoping that the companies strategy is to build up inventories till the start of the season and (hopefully) convert them to profit in this season.
I will wait for the Q3 results and sell my holding if the results are not good.
However will also await your valued advice after you conclude your analysis.
Just repeating what I said earlier.
The IPO investors gave the company Rs 105 crore.
Cantabil hasn't become a great investment because of this cash infusion.
However, the company's financial situation is much better than what it was before the IPO.
I am still not sure what should be done with the stock at the current price (Rs. 69).
Cantabil Retail IPO
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