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| Koutons to launch premium brand, shut more stores |
| Raghavendra Kamath / Mumbai Oct 07, 2010, 01:00 IST |
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Financially troubled retailer says it can handle its problems, will have share issue in 2 months
Koutons Retail, the Delhi-based apparel retail chain, plans to launch a premium brand soon as part of a plan to improve cash flows, a top company official said.
Koutons follows a retailing model where it gives 50-80 per cent discounts on brands such as Koutons Menswear, Charlie Outlaw, Les Femme and Koutons Junior.
“We are planning to launch a premium brand shortly for which we are in talks with various parties,” Ajay Mahajan, chief financial officer, said in an e-mailed response.
Koutons was recently in the news after its stock fell over 45 per cent in the week from September 27 after rumours about the company defaulting on its bank dues and its poor financial health floated in the markets. The exit of three independent directors, increase in pledging of promoter shares from 45.78 per cent (of total equity base) by the end of the June quarter to 53.55 per cent, and rating firm Icra suspending ratings awarded to Koutons’ fund-based based facilities also raised concern among investors.
“We had a cautious view on the stock owing to the dismal first quarter FY 2011 performance. Further, these recent developments of increased pledging and exit at the top level have led to increased concerns. We recommend that investors refrain from taking fresh positions or averaging the stock until further clarity emerges,’’ said ICICIdirect.com analysts Bharat Chhoda and Dhvani Modi in a recent report.
Mahajan said the company was in the process of shutting 50-60 losing stores to improve cash flows. The company has shut nearly 200 stores in the past 18 months to stem losses. It now runs 1,196 stores across the country, mostly owned by its franchisees.
Koutons posted net sales of Rs 161.5 crore in the first quarter of FY2011, down 58.1 per cent from the previous quarter and 19.9 per cent lower than the corresponding quarter last year. The reported profit after tax was Rs 5.5 crore, down 82.4 per cent from Q4 of FY 2010 and 52 per cent lower than Q1 of FY 2010.
It would also increase the capacity utilisation of the 18 manufacturing units and consolidate production for better efficiency, he said.
Analysts say the company has been facing inventory pile-up for some time, which suggested it was not able to sell its stock. “Their business model was good but there was a problem with operational management. Inventories were in the books for two to three years without stock runs,’’ says Sangeeta Tripathi, an analyst with Sharekhan Ltd, a stock brokerage.
Mahajan said the company is classifying all operations in a grading system and manufacturing the inventories as needed. “We are reducing the stock keeping units at the store level and setting up regional warehouses to reduce transit inventory,’’ he said.
Though there was a buzz about Koutons defaulting to a public sector bank and going for corporate debt structuring, the company has strongly denied this. According to Mahajan, the company has a debt of Rs 660 crore as against net worth of Rs 505 crore and a debt to equity of 1.3 times. The interest outgo is Rs 90 crore this year.
“We are profitable enough to take care of our interest burden. Yet, there is some scope for efficiencies and savings in interest costs, as rates are relatively high at 14 per cent. We will work towards that,’’ he said.
On Monday, Kouton’s chairman, D P S Kohli, said the company would be able to raise up to Rs 400 crore through a preferential share issue by the end of December. “We are in discussions with various private equity firms and hope to launch road shows soon,” he said.
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