carao
25-11-2007, 11:40 PM
Koutons Retail India ltd is one of the leading integrated apparel manufacturer and retail company with 674 exclusive brand outlets in Tier I and Tier II towns of India. The company undertakes business under "Koutons" and "Charlie Outlaw" brands through franchisee driven operating model, targeting middle to high fashion segment in men's wear category.
The company operates in manufacturing and retailing of finished apparels like denim and non-denim trousers, formal and casual shirts, t-shirts, blazers, cargos in men's wear through EBOs (Exclusive brand outlets). Koutons Retail exclusive brand outlet are structured on three models: (A) Company leased & company operated (B) Company leased and franchisee operated (C) Franchisee owned/leased and franchisee operated.
The company owns and operates only 2% of total EBO (Exclusive brand outlet) while 80% of EBO are franchisee owned/leased and franchisee operated. The company has annual finishing and manufacturing capacity of 2.29 cr and 1.2 cr pieces of apparels respectively, which contributes to 85% of sales. The company has positioned Koutons brand in middle and high fashion segment targeting age group of 22 to 45 years while Charlie outlaw brand is targeted at fashion conscious youngsters in age group of 14 to 25 years. The company also plans to foray in women's wear and child wear category.
INVESTMENT POSITIVES
Boom in retail industry
Retail industry has been growing at a CAGR of 30% fostered by increasing income levels leading to higher consumer spending. India's young population (below 35 years) accounts for 65% of the total out of which 54% is below 24 years of age. This composition of age group has the highest purchasing power, which is a direct booster for retailing industry.
Wide network of EBO
The company operated 647 exclusive brand outlets (EBO) mainly through franchisee. The wide coverage of its EBO from metros to tier II towns and through various regions in India, allows flexibility to hedge against fashion changes given the general time lag in fashion trends between metro and tier II towns.
Benefit of in-house manufacturing
The company is integrated player across the value chain of manufacturing and retailing. By virtue of centralized purchasing system the company has achieved standardization in quality control, which enables the company to maintain quality of goods manufactured and marketed.
CONCERNS
-- The franchisee model adopted by the company has led to low inventory turnover, as the risk of inventory is not transferred until goods are finally sold to customers leading to high levels of inventory. This leads to increase in funding for working capital as cash is tied in inventory for longer period.
-- Koutons Retail will face competition from existing players due to their size of operation and consumers inclination towards well-established brands.
VALUATION
Retail sector has been growing at a CAGR of 30% fostered by higher consumer spending and rising income levels. The company has leveraged upon this opportunity and has posted a CAGR growth of 121% in sales and 240% in net profits in last 3 years. The company has NPM and ROCE of 9% & 32%, which is well above its peers due to in-house manufacturing capacity of the company which provides edge over others due to better cost effeciency and quality control.
The operating margins has improved by 130 basis points and operational efficiency is expected to increase further with integration of 17 manufacturing units in coming years. With company planning to setup up 140 exclusive brand outlets and integration of 17 units, we expect sales to grow at 73% CAGR till FY 09 and higher net profit margins than its peers to facilitate an EPS of Rs.35.3.
At current price of Rs 720, the stock is trading at P/E of 20.7x at it's FY09 earnings, which is cheaply valued. We recommend investors to accumulate the stock at current price.
The company operates in manufacturing and retailing of finished apparels like denim and non-denim trousers, formal and casual shirts, t-shirts, blazers, cargos in men's wear through EBOs (Exclusive brand outlets). Koutons Retail exclusive brand outlet are structured on three models: (A) Company leased & company operated (B) Company leased and franchisee operated (C) Franchisee owned/leased and franchisee operated.
The company owns and operates only 2% of total EBO (Exclusive brand outlet) while 80% of EBO are franchisee owned/leased and franchisee operated. The company has annual finishing and manufacturing capacity of 2.29 cr and 1.2 cr pieces of apparels respectively, which contributes to 85% of sales. The company has positioned Koutons brand in middle and high fashion segment targeting age group of 22 to 45 years while Charlie outlaw brand is targeted at fashion conscious youngsters in age group of 14 to 25 years. The company also plans to foray in women's wear and child wear category.
INVESTMENT POSITIVES
Boom in retail industry
Retail industry has been growing at a CAGR of 30% fostered by increasing income levels leading to higher consumer spending. India's young population (below 35 years) accounts for 65% of the total out of which 54% is below 24 years of age. This composition of age group has the highest purchasing power, which is a direct booster for retailing industry.
Wide network of EBO
The company operated 647 exclusive brand outlets (EBO) mainly through franchisee. The wide coverage of its EBO from metros to tier II towns and through various regions in India, allows flexibility to hedge against fashion changes given the general time lag in fashion trends between metro and tier II towns.
Benefit of in-house manufacturing
The company is integrated player across the value chain of manufacturing and retailing. By virtue of centralized purchasing system the company has achieved standardization in quality control, which enables the company to maintain quality of goods manufactured and marketed.
CONCERNS
-- The franchisee model adopted by the company has led to low inventory turnover, as the risk of inventory is not transferred until goods are finally sold to customers leading to high levels of inventory. This leads to increase in funding for working capital as cash is tied in inventory for longer period.
-- Koutons Retail will face competition from existing players due to their size of operation and consumers inclination towards well-established brands.
VALUATION
Retail sector has been growing at a CAGR of 30% fostered by higher consumer spending and rising income levels. The company has leveraged upon this opportunity and has posted a CAGR growth of 121% in sales and 240% in net profits in last 3 years. The company has NPM and ROCE of 9% & 32%, which is well above its peers due to in-house manufacturing capacity of the company which provides edge over others due to better cost effeciency and quality control.
The operating margins has improved by 130 basis points and operational efficiency is expected to increase further with integration of 17 manufacturing units in coming years. With company planning to setup up 140 exclusive brand outlets and integration of 17 units, we expect sales to grow at 73% CAGR till FY 09 and higher net profit margins than its peers to facilitate an EPS of Rs.35.3.
At current price of Rs 720, the stock is trading at P/E of 20.7x at it's FY09 earnings, which is cheaply valued. We recommend investors to accumulate the stock at current price.