Koutons following foot-steps of Subhiksha and Vishal Retail? Will Retail Industry Claim one more Victim?

The Retail sector is touted as the new modern day industry. In fact, India has been ranked as the most attractive country for retail investment among 30 emerging markets. However, the ride for this rapidly growing industry does not come without its share of topsy-turvy turbulences.

There are various challenges being faced by the organized retail sector in India which are creating hurdles for the industry in reaching its full potential. Some of the concerns are lack of retail space in the eyes of escalating real-estate prices, shortage of trained manpower, shrinkage or fraud in retail and most of all funding constraints and regulatory hurdles.

The sector has already witnessed a couple of victims in the form of Subhiksha and Vishal Retail. While Subhiksha became a victim of aggressive expansionary plans – in a tearing hurry to roll out stores; Vishal Retail just managed to scrape through by way of deal to sell its business to PE player TPG Capital (for wholesale arm) and Shriram Group (for retail arm).

Thus, the struggle has been more intense for the smaller players within the industry for whom the retailing has been a grind within the country. The challenges range from improper inventory management to inefficient back-end in place. Often, the lack of sound supply and logistic chain has kept the smaller companies struggling to make ends meet.

Another likely candidate to the list of accident-prone domestic retail companies could be – Kouton Retail India. The rumours in the market are that the banks are claiming that the company’s accounts are now considered NPA. Further, the credit rating agency ICRA suspended its “LB+/A4” ratings assigned to Rs.3 billion fund based facilities to the retailer as the company failed to produce the requisite financial information.

However, other reports suggest that the Apparel retailer has only delayed payment to its lenders and it might not be a case of loan default. The interest payment to 2-3 banks has been delayed by 10-15 days. Koutons has a total debt of Rs.6.6 billion out of which Rs.400-500 million is up for repayment by March. Payment of 2 monthly instalments, totalling to Rs.160 million in principal has been delayed to Allahabad Bank.

Last week, the stock price of Koutons Retail slumped from Rs.300 to Rs.130 (LTP Rs.117) on the Indian bourses. Currently, Koutons promoters hold 63.9% stake in the company and the speculation is that they might have pledged nearly half of their stock. Further, the analysts fear that the promoters might have pledged for the second time in the last three weeks triggered by steep fall in prices recently.

The company’s debt to equity works works out to be 2.6 times. In the June quarter, the company witnessed shrinking margins on account of pile-up of inventory, some of which could have been sold at the discounted rates to the customers.

Will Kouton succumb to the pressures or will it become an acquisition target by some bigger retailer?