Ag gressive expansion in the highly competitive apparel retailing market seems to have run Koutons Retail India Ltd (KRIL) aground. Its shares tumbled 20% on Thursday to `172.40, on reports about its inability to service its ris- ing debt burden. Other worries are the departure of its senior execu- tives and the fact that more than a quarter of its equity of `30.60 crore is pledged to creditors. The stock is down by nearly half over the past year. Investors should have taken a cue from the Icra Ltd rating out- look of LB+ in August 2009, implying inadequate credit quality. “We had indications of liquidity pres- sures and delay in interest pay- ments to banks then,“ said Vivek Mathur, senior vice-president and head northern region, Icra. Ironi- cally, equity analysts had projected a profit growth of 20-25% for the ensuing two years. It was only from the March quarter that some analysts began derating the stock.
What went wrong? KRIL's scorching pace of expansion ate into cash flows. Its franchise model protected upfront capex, while higher inventories both on the manufacturing front and stocks at its stores guzzled work- ing capital funds. What was viewed to be KRIL's strength-- its presence across the value- chain as manufacturer, distribu- tor and retailer--turned out to be its biggest weakness.
In the June quarter, KRIL's sales fell by 20% on a year-on- year basis and 58% sequentially.
Operating profit margin declined, though sequentially it improved as the firm closed some stores and lowered discounts. But the fall in sales hit profitability.
Analysts suspect that debt re- structuring/refinancing as expec- ted may not have gone through.
For now, the road ahead is bleak, with falling revenue prospects and rising interest costs.
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