Koutons Retail
Reco Price: Rs 354
Current market price: Rs 353
Target price: Rs 500
Upside: 41.6%
Brokerage: Edelweiss Research
Koutons Retail’s USP is its ability to cut down intermediaries and bring fashion to masses at affordable prices. The brokerage is positive on the company’s growth based on its business model, expansion plans, and higher margins compared to other retailers on account of integrated operations. It initiates coverage on the stock with buy recommendation and values it at 12.5 times FY11E EPS (50 per cent discount to Pantaloon’s FY11 P/E multiple) to arrive at a target price of Rs 500.The report mentions that organised retail is expected to grow at CAGR of 19 per cent over the next four years to reach Rs 202,400 crore by FY13E. Clothing and fashion accessories, which account for 38 per cent of this will be one of the key beneficiaries. The brokerage believes, low penetration, favourable demographics, steady economic growth, increasing availability of credit, and improving cost structures will reverse the now sagging fortunes of organised retail.
Koutons plans to convert its existing stores to family stores and rationalise stores based on demand. We expect interest costs to dip due to restructuring of high cost debt and softening of interest rates. This is likely to increase its PAT margins over the coming quarters with earnings CAGR of 24.6 per cent over FY09-11E likely.
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