Thursday, December 16, 2010

Koutons Retails India Ltd - may post significant losses going ahead - time to sell ?

Koutons Retails India Ltd

Quick analysis on company’s fundamentals
Report Dated : 05th December 2010.

The company has performed disappointingly F1-FY11 where sales are down more than 50% as compared to F1-FY10. The company has managed PAT of around 7 cr as against 35 Cr.

We believe, with scale of business down to this level and with no corresponding reduction in the loan liabilities and current assets (inventory level and sundry debtors), the company will be hard pressed to meet its obligations towards lenders going ahead. Default is very much possible.

The balance sheet looks to be very stretched in terms of loan and working capital as compared to its operation. In the absence of liquidity available in the balance sheet, we feel that even current scaled down operation will be difficult to sustain.

Further, since company is carrying significant inventory for some time and not matched by sales. The company had over Rs 600 cr of Finished/Semi goods (at cost)  as on 31st March 2010 whereas sales in F1Fy11 has been only around 325 cr, we firmly believe that there may be significant write down in the value of the inventory in next few quarters resulting in company going deep in to the red.

There seems to be no case of remaining invested in the company and barring some short term recovery based on market conditions, immediate term fundamentals looks to be very weak and any recovery in the price can be used as an opportunity to exit. Even booking losses at this level can be thought.