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Koutons Plans to Raise Funds Via Share Sale

Koutons Retail India Ltd. is looking to raise 1.20 billion rupees ($24.7 million)-1.50 billion rupees by the end of December through a share sale to fund expansion and reduce debt.

The apparel retailer may raise the funds via a private equity deal or a qualified institutional placement, Chairman D.P.S. Kohli told Dow Jones Newswires recently.

Plans will be firmed up by the end of this month, he added.

Koutons Retail's fundraising plans come at a time when several Indian retailers are talking of expansion after closing hundreds of nonviable stores in the past one year when sales slumped due to the economic slowdown.

But the federal government's stimulus measures – such as salary hikes for government employees and tax cuts for all – as well as interest rate reductions by banks late last year and early this year have helped improve local demand.

While Shoppers Stop Ltd. is looking to open 15 stores in the next 36 months, Spencer's Retail Ltd. expects a 10% rise in revenue this fiscal year, when it plans to open 10-15 stores.

Mr. Kohli said most of the funds will be used to set up stores while a part will be utilized to lower debt.

He didn't say how many stores the company plans to open. Koutons, which shut 178 stores in the past one year, currently operates 1,385 outlets.

Mr. Kohli said the company currently has debt of about 5 billion rupees-6 billion rupees, and it is in the process of substituting its high-cost loans with low-cost borrowings.

The company is aiming to reduce by about 200 basis points its interest payments as a percentage of sales by the end of the current financial year through March 2010.

Interest payments were 13% of the company's net sales in the April-June quarter.

Mr. Kohli said net sales this fiscal year are likely to grow about 30% from a year earlier as the upcoming festival season and improving customer demand help drive sales higher in the second half of the year.

Indian retailers traditionally record a steep increase in sales around the Hindu festival season, which begins late September this year.

The company's net sales were 32% higher from a year earlier at 10.47 billion rupees for the financial year ended March 31, 2009. For the April-June quarter this fiscal year, net sales jumped 27% from a year earlier to 2.01 billion rupees. Net profit rose 6.1% to 115 million rupees.

Mr. Kohli said the company has seen a definite improvement in consumer sentiment from the first quarter onward, and that has been sustained in the current quarter.

He added that the first quarter of the current financial year saw same-store sales growth of about 5%-6%.

Same-store sales – an indicator of sales growth at stores open for at least a year – were flat in the second half of the past financial year, he said.

Mr. Kohli said the company is focussing on its larger-sized family outlets that sell apparel, accessories and footwear.

The company operates 225 such family stores, which offer better economies of scale and attract more customers.

Also, the company has 655 Charlie Outlaw stores that sell casual wear, and 505 Koutons stores that sell formal apparel exclusively for men.

Koutons plans to concentrate on higher-margin segments such as women's wear, children's wear and premium brands such as 'Feel me' and 'Patent Club', Mr. Kohli added.

Source: WSJ

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