>Koutons Retail India (BATLIVALA & KARANI)

Discounted for!

Koutons Retail India Limited (KRIL) is a pioneering discount retailer of readymade fashion apparel for mew, women and chlidren. The company, with its own manufacturing operations, currently operates ~ 1,450 retail outlets across India, mainly through a franchisee network and intends to increase the total number of stores to ~ 1,950 by FY11. Although its cost efficient business model of supplying only to its own exclusive brand outlets (EBOs) and a high dependency on franchising makes it favourably placed among other peers in terms of operating profitability, the slower growth in store expansion and turnover due to economic slowdown and increasing debt will impact its profitability going forward.

KRIL's wide array of apparels, new product launches and heavy discounting of its products will enable it to record a top line CAGR of 15.3% for FY08-11E.

However, due to weak macroeconomic conditions, higher level of discounts and increase in debt, the margins and profitability will adveresely affected, resulting in a bottom line CAGR of (1.3%) over FY08-11E.

At the current levels, valuations of 18.8% our FY10E estimates are at premium to other leading players such as Pantaloon and Titan. In view of the concerns and stretched valuations of the company, we are initiating coverage with an Underperformer rating and target price of Rs 308, which offers a downside of 20% from the current price.

To see full report: KOUTONS