Buy Koutons Retail; target of Rs 481: LKP Shares

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LKP Shares is bullish on Koutons Retail and has recommended buy rating on the stock with a target of Rs 481, in its March 18, 2010 research report.

"Koutons Retail is the largest discount retailer of readymade apparels for men, women and children's in India with its own manufacturing facilities in North India. The company has a pan India presence through its network of over 1,400 Exclusive Brand Outlets (EBO's) in five different formats.  With the management efforts to reduce inventory levels and with entry into higher margin children and female apparel retailing segments we expect higher traction in its revenues and profits going forward. The company has taken several measures to address the concern of high inventory on books, which included the inventories at manufacturing facilities, existing stores and buffer stock for new stores. The measures include key initiatives like outsourcing of production work, reducing SKU's (Stock Keeping Units) at stores and sharing idle capacities with other manufacturers. These initiatives are not only expected to bring down the inventory level on books but also to enhance profitability.

"With the improvement in consumer sentiment, expansion of product offerings for women and children within apparels along with footwear and accessories, we expect Koutons to post robust revenue growth going forward. The initiatives taken by the company to reduce inventory and debt on books will lead to the improved profitability in the future. Although, the strained balance sheet remains a concern, but post completion of debt restructuring, the issue is expected to be well addressed. The proposed QIB issue will further help the company to reduce debt to equity ratio and improve leverage. We believe that the stock price has already factored in all the mentioned concerns and thereby has limited downside from current levels. We initiate coverage on the stock with a BUY rating and a price target of Rs 481 based on 7.0x FY11E EV/EBITDA multiple."

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