Koutons Retail India Limited IPO

[Alchemist]

Koutons Retail India Limited IPO

Opens: September 18, 2007.
Closes: September 21, 2007.

Price Band: Rs 370 to Rs 415.

Number of shares offered: 3524439.

Number of fresh shares: 2607897.
Number of shares offered by promoters: 916542.

Number of outstanding shares Pre-IPO: 27943500.
Number of outstanding shares Post-IPO: 30551397.

IPO Size at two ends of the price band: Rs 130.4 crore and Rs 146.3 crore.

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This is a good company offering shares at a reasonable price.

The IPO is surely investment grade and listing gains are also certain.

However, being a small IPO, chances of allotment aren't much.

I think, no one in the retail category will get more than 15 shares.

Last time I checked, Koutons Retail had nearly a Rs 100 premium in the IPO grey market.

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I will post about the details of the company and its financials later in the day.

Apply for the IPO if you have spare cash. However, keep in mind that you will not be getting more than a few shares.

[Alchemist]

Koutons Retail India is a manufacturer cum retailer of branded apparel.

It currently sells its apparel using the “Koutons” and “Charlie Outlaw” brands.

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India's clothing, textile and fashion accessories (CTF) retail market is growing at more than 10% annually.

Nearly half of the growth is coming from the organized sector.

Between CY 2004 and CY 2006, India's CTF retail market grew from Rs 80000 crore to Rs 98000 crore.

In the same period, organized retailing in CTF grew from Rs 10900 crore to Rs 18500 crore.

Thus, out of Rs 18000 crore of growth, Rs 7600 crore growth came from the organized sector.

Clearly retail organized CTF is a fast growing industry.

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Koutons India has an annual finishing and manufacturing capacity of 22.92 million pieces and 12.36 million pieces of apparel, respectively.

The capacity utilization for the same, was 41.21% and 21.99% respectively at the end of FY2007.

Koutons has 18 manufacturing/finishing units and 14 warehouses spread across various locations in and around Gurgaon. All, but one manufacturing unit(which is owned) are leased.

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Major Objectives of the IPO:

-Rs 40 crore will be utilized for setting up new brand outlets.
-Rs 30 crore will be utilized for setting up new integrated manufacturing facility.
-Rs 10 crore will be utilized for purchasing new machinery and equipment.

(These are just approximate figures provided by the company and actual utilization may vary).

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The company operates Exclusive Brand Outlets (EBO) under two brands, “Koutons” and “Charlie Outlaw”.

As in August 2007, the number of EBO's was 999.

Out of these
17 were COCO. (company owned / leased and company operated).
124 were COFO. (company owned / leased and franchisee operated).
858 were FOFO.(franchisee owned / leased and franchisee operated).

The IPO proceeds will be used to open around 140 new stores over the next two years.

Most of these will be under COCO or COFO model.

As the company will go for COCO and COFO models, the initial investments will be high. However in the long run, this will improve margins.

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Koutons Retail will be making good use of the IPO proceeds.

By expanding with the COCO and COFO models, the company will ensure better sales and also higher profits margins, at the cost of higher initial investments.

The company's strategy is to have small, but more stores. This helps to save costs and at the same increase reach of the company.

Very few retailers in India have more stores than Koutons.

By setting up new integrated manufacturing facility, it will also reduce long term costs. 17 of the company's current 18 manufacturing premises are leased and many of these may be shifted to the new integrated manufacturing facility to save costs.
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The company has a phenomenal growth record.

For the last five financial years, Kouton Retail India's total revenues have been:

FY 2003: Rs 22.32 crore.
FY 2004: Rs 31.75 crore.
FY 2005: Rs 58.15 crore.
FY 2006: Rs 158.39 crore.
FY 2007: Rs 403.62 crore.

For the last five financial years, Kouton Retail India's net profits have been:

FY 2003: Rs 0.43 crore.
FY 2004: Rs 0.88 crore.
FY 2005: Rs 1.93 crore.
FY 2006: Rs 13.2 crore.
FY 2007: Rs 34.49 crore.

CLSA expects revenues of Koutons India to grow at 69% CAGR till FY 2009 and net profits to grow by 48% CAGR till FY 2009.

Considering post-IPO dilution, the eps for FY2007 was Rs 11.29.

FY 2008's eps is expected to be around Rs 17.

The stock at Rs 415 will be available at a current PE ratio of 37 and a forward PE ratio of 24.5.

Considering the past growth and future prospects of the company, this looks attractive.

Investors as well as traders should subscribe to the IPO. (The chances of allotment are not much.)
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The company is a fast growing company in a fast growing industry.

Moreover, its strategy of small COCO and COFO stores and owned manufacturing facilities will make it a more profitable company than many other retailers around.

I feel this will be a good investment stock for investors who are willing to hold for 3 years+.

[Alchemist]

Originally Posted by Alchemist

Very few retailers in India have more stores than Koutons.

Edit: Actually, Koutons Retail is the largest apparel chain in India in terms of number of outlets.

[g_kab35]

Hello Sir,
Waiting for ur view on Consolidated Constructon Co Ltd.
(Does the bigger issue than Koutons means more chance of allocation?)
Thanks.

Eco times rated Koutons and CCCoLtd issue as *** and ***1/2.
same while ICICI Direct shows "Avoid" to both.
Both ET and I'direct are respected in their fields.
But Makes Confusion.

[Alchemist]

Originally Posted by g_kab35

Hello Sir,
Waiting for ur view on Consolidated Constructon Co Ltd.
(Does the bigger issue than Koutons means more chance of allocation?)
Thanks.

Eco times rated Koutons and CCCoLtd issue as *** and ***1/2.
same while ICICI Direct shows "Avoid" to both.
Both ET and I'direct are respected in their fields.
But Makes Confusion.

Consolidated Construction is not a bad company, but the price seems a bit expensive.

I will take a better look at Consolidated Construction tomorrow and post about it.

I think it will be better to wait till the last day to make a decision.

If Koutons gets 40+ times subscribed in the retail segment, then applying for Consolidated Construction will make more sense.

However, if Consolidated Construction doesn't get sufficient subscription, then Koutons will be a much safer bet.

Consolidated Construction has Rs 150 or so premium in the grey market, but I will prefer to wait till the last day and then only make a decision.

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ICICIDirect.com's research isn't always accurate.

They had sent a special 25-page report on the sugar sector in October 2006 to all investors. The report strongly recommended buying sugar stocks.

Every investor who must have bought a sugar stock after reading the report, must be now cursing ICICIDirect. .

An investor must think for himself and no rely on others' decisions for investing.

[Alchemist]

Final subscription figures for Koutons Retail India IPO:

Overall Subscription: 45.5 times.

Qualified Institutional Buyers (QIBs): 66.4 times.
Non Institutional Investors: 18.8 times.
Retail Individual Investors (RIIs): 14.8 times.
Employee Reservation: 1.1 times.

Everyone who applied for 225 shares (Rs 93375) should get firm allotment (retail category).