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Friday, March 25, 2011

Would you Buy Stocks of Koutons at 92% discount?

This is one apparel retailer I have been thinking about since I had seen their store first time in DT Mega Mall, Gurgaon. They were first as such retailer offering good looking fashion apparel clothes at 70% and 80% discounts to MRP. Now their stock in stock market is available at whopping 92% discount to it’s IPO price of Rs.415 (sounds to me like clearance item) and at even bigger discount of 97% to it’s high of nearly Rs.1100 after listing. Would you like to Buy Stocks of Koutons Retail India with more than 90% discounts? It is available at current stock price of Rs.33 !

Had it been apparel, everyone would have rushed to but this is a stock I am talking about and you should do thorough stock analysis before you touch it looking at discount banner.

Recently Koutons Retail admitted that huge debt is hanging over the company’s head. They do not have money to get rid of it and that no option is left other than debt restructuring to recast debt. What does this indicates? A sick company with loads of debt on it’s balance sheet which it cannot pay back to lenders.
Koutons Retail has total debt of Rs.660 crores, out of which Rs.460 crores will go in corporate debt restructuring (CDR) and remaining Rs 200 crore is non-CDR as per CNBC-TV18 reports.

SBI Capital is acting as their consultant for debt recasting. They have prepared a rough package for the company that includes debt repayment over a period of 9 years including a 2 year moratorium (Company will not have to pay any money to the bankers for first 2 years in terms of interest of principal).

Now, 9 whole years Koutons is going to repay the debt to its lenders. What does that mean for an investor? Company will use all its earnings in profits to pay back the loan and interest on it. What would it pay back to investors? Gha*ta? Stock at more than 90% discount? It will take years for the company to come back with good numbers along with repayment of debt.

Promoters of Koutons Retail own about 98 lakh shares, which is 32% of the company and remaining 96 lakh shares are pledged with the lenders. This is where integrity of promoters comes in question. They sold the big chunk in IPO and must have made money. Shown big numbers on back of debt, took the stock to more than double within a few months, made money and now unable to pay back the debt to lenders. What did promoters loose? A common man who would have invested in Koutons retails at Rs.1000 must be crying looking at that 97% discounted price of his “stock” of apparels!

I am sure clearing this debt and paying back to investors will take more than a decade for this company but promoters would enjoy their “share” thru big fat salaries, bonuses and company paid expenses.

I don’t see promoters acting efficiently enough to the benefit of shareholders and I see no reason to Buy Stocks of Koutons retail unless company shows some good real progress towards repayment of debt.

4 comments:

  1. excellent analysis dude..may you spare some time to analse SIMMONDS MARSHALLL..LOOKS LIKE A MULTIBAGGER FOR ME
    REGARDS
    Dr GANESH

    ReplyDelete
  2. Very good analysis of Stocks of Koutons Retail. Is that SEBI and Stock exchange of india is so blind to know the intension of promotors of Koutonus. What the SEBI is duning when Koutonus files is DRHP.Why not SEBI grade the IPO.How can SEBI restrict himself to collect legel charges and left the invester BHAGAWN BHORESA.
    Regards
    Raju

    ReplyDelete
  3. Recently Koutons Retail admitted that huge debt is hanging over the company’s head. They do not have money to get rid of it and that no option is left other than debt restructuring to recast debt. What does this indicates? A sick company with loads of debt on it’s balance sheet which it cannot pay back to lenders.
    Koutons Retail has total debt of Rs.660 crores, out of which Rs.460 crores will go in corporate debt restructuring (CDR) and remaining Rs 200 crore is non-CDR as per CNBC-TV18 reports.

    SBI Capital is acting as their consultant for debt recasting. They have prepared a rough package for the company that includes debt repayment over a period of 9 years including a 2 year moratorium (Company will not have to pay any money to the bankers for first 2 years in terms of interest of principal).

    Now, 9 whole years Koutons is going to repay the debt to its lenders. What does that mean for an investor? Company will use all its earnings in profits to pay back the loan and interest on it. What would it pay back to investors? Gha*ta? Stock at more than 90% discount? It will take years for the company to come back with good numbers along with repayment of debt.

    Promoters of Koutons Retail own about 98 lakh shares, which is 32% of the company and remaining 96 lakh shares are pledged with the lenders. This is where integrity of promoters comes in question. They sold the big chunk in IPO and must have made money. Shown big numbers on back of debt, took the stock to more than double within a few months, made money and now unable to pay back the debt to lenders. What did promoters loose? A common man who would have invested in Koutons retails at Rs.1000 must be crying looking at that 97% discounted price of his “stock” of apparels!

    I am sure clearing this debt and paying back to investors will take more than a decade for this company but promoters would enjoy their “share” thru big fat salaries, bonuses and company paid expenses.

    I don’t see promoters acting efficiently enough to the benefit of shareholders and I see no reason to Buy Stocks of Koutons retail unless company shows some good real progress towards repayment of debt.

    ReplyDelete

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